• Tuesday, Jun 22, 2021
  • Last Update : 02:26 am

Economists: Capping lending rate to weigh on depositors, banks’ deposit

  • Published at 09:29 pm March 5th, 2020
Speakers at Bangladesh Economic Conference 2020 on Thursday, March 5, 2020 Dhaka Tribune

Finance Minister AHM Mustafa Kamal inaugurated the conference as the chief guest

Capping lending rate would impact both depositors’ money and banks’ deposit growth badly, reducing the lenders investment capacity, experts said on Thursday.

Banks’ depositors would lose a portion of their deposit money as inflation rate was close to 6%, they said at a programme titled, ‘Bangladesh Economic Conference 2020,’ at Pan Pacific Sonargaon hotel in the capital.

Finance Minister AHM Mustafa Kamal inaugurated the conference as the chief guest. Salman F Rahman, Private Sector Industry and Investment Adviser to the Prime Minister attended as a special guest. 

Bonik Barta, a Bangla-language business daily and City Bank jointly organized the conference. 

Former advisor to the caretaker government A. B. Mirza Azizul Islam said “I am sorry to say that the banking sector is now witnessing the worst situation due to the political interference.”

The decision of capping the lending rate at 9% would create more volatility for the sector as deposit growth in banks already saw a steep decline in January, which was the direct impact of the capping decision, he added. 

Mirza Azizul Islam said total amount and percentage of banks’ defaulted loans was above the internationally recognized level. 

Citing the International Monetary Fund, he said the actual size of bad loans would be more than double if write-off loans and bad loans pending with courts were counted.

Former BB governor Salehuddin Ahmed said lacking of infrastructural development was the biggest challenge for boosting the industrialization. Capping lending rate alone would not solve the problems, he added.

Forceful implementation of the single-digit lending rate would cause banks to suffer badly, mentioned Salehuddin.

The central bank should be more independent for better functioning, he also said. 

Finance Minister AHM Mustafa Kamal said, “The banking sector is not functioning well. Now we are working hard for a sound banking sector.”

Industrialization was not possible if interest rates were high as the non-performing loans were rising due to the high interest rate, he added. 

AHM Mustafa Kamal said bankers were charging between 20% and 25% interest on loans, making the borrowers unable to pay back the borrowed money. Banks should avoid calculating compound interest rate, he asserted.

“Many people say I am not a believer in the open market economy due to my firm stance on capping bank lending rate. But we capped the lending rate to control the high interest rates that impact industrialization,” said finance minister.  

Centre for Policy Dialogue (CPD) board of trustees Chairman Professor Rehman Sobhan said in the last 50 years of development in the country, many achievements were visible.

Diversified agricultural system and industries were playing vital roles to our overall economic development, he added. 

Rehman Sobhan said the infrastructural development was eye-catching and the lifestyle of people changed a lot. 

The economist suggested for strengthening the ailing banking sector. 

Salman F Rahman said, “Now we are a digitized Bangladesh under the leadership of Prime Minister Sheikh Hasina.” 

“We have many challenges but at the same time we have also many success stories. Bangladesh is the role model in the world in the area of gender equality and women empowerment,” he added.  

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