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Single digit lending rate elusive: Soaring NPLs, fund crisis, lack of good governance major hindrances

  • Published at 01:06 am November 9th, 2018
A distinguished speaker at the concluding day of the two-day ‘Annual Banking Conference 2018’ at the Bangladesh Institute of Bank Management in Mirpur, Dhaka, yesterdayDhaka Tribune
A distinguished speaker at the concluding day of the two-day ‘Annual Banking Conference 2018’ at the Bangladesh Institute of Bank Management in Mirpur, Dhaka, on Thursday Dhaka Tribune

Central and senior bankers from different Asian countries, including: Bangladesh, India, Nepal, and Malaysia attended the two-day conference at the Bangladesh Institute of Bank Management (BIBM) in Mirpur, Dhaka

Soaring Non-Performing Loans (NPLs), scarcity of investable fund and lack of good governance in the banking sector are major obstacles to bring down the lending rate to a single digit, top bankers in the country said on Thursday.

Central and senior bankers from different Asian countries, including: Bangladesh, India, Nepal, and Malaysia attended the two-day conference at the Bangladesh Institute of Bank Management (BIBM) in Mirpur, Dhaka.

Professor Dr. Shah Md. Ahsan Habib, Chairman, Organizing Committee, Annual Banking Conference (ABC) 2018, delivered the welcome speech, Dr. Toufic Ahmad Choudhury; Director General (DG) of BIBM presided over the concluding day session. 

Helal Ahmed Chowdhury, Supernumerary Professor of BIBM said: “NPLs is a big challenge for our banking sector. Market competition, market rate, peer banks’ rate, demand and supply of investable fund, regulatory compliance and operating cost are major obstacles in implementing the single digit interest rate on lending.”

“Several banks have already been involved in systemic risks. Digitalization is also a big challenge for banks to implement” he added. 

Md. Yasin Ali, Supernumerary professor of BIBM said that default loans in the banking sector are increasing day by day. Bangladesh Bank should take effective initiatives to curb the trend, he added.

 “Lack of good governance is a long-term problem,” he also said. 

He added that, “The investable fund in banks is limited. Therefore, lending should focus on productive sectors.”

Md. Nehal Ahmed, professor of BIBM said that, “Cost of fund is the most important factor.  Although banks declared to lower the lending rate to 9%, it is difficult to implement the single digit interest rate on lending.” 

“Banks cannot reduce the spread. Bangladesh Bank should have more effective roles in this regard,” he added. 

Dr. Md. Habibur Rahman, General Manager of Bangladesh Bank said that, “Most of the loans particularly in consumers’ credit, construction, transportation, trading, green and SME finances are being charged at a higher than 9% rate while the weighted average deposit rate in the banking industry is well below 6%.” 

“Factors such as cost of fund, rates of peer banks, market rates, market competition and demand and supply of loanable fund and regulatory compliance are major reasons hindering the implementation of a single digit rate by the banks,” he added. 

Dr. Khondakar Golam Moazzem, Research Director, Centre for Policy Dialogue (CPD), Dr. Prashanta Kumar Banerjee, Professor Shibli Rubayat Ul Islam, Dean, Faculty of Business studies, University of Dhaka, attended also the meeting.

Seven papers were presented on “Macro Banking Environment” at the plenary session of the conference. 

A keynote paper titled “Governance and competitiveness: An Econometric Analysis of the Banking Sector of Bangladesh” was presented at the conference. The paper was co-authored by Dr. Fahmida Khatun, Executive Director of CPD and Syed Yusuf Saadat, Research Associate of CPD. 

Another paper titled “Econometric Examination of Conventional and Islamic Equity Indices in Bangladesh”, submitted at the conference  was co-authored by  Dr. Md. Abu Hasan, Assistant professor of Economics, Bangladesh Civil Service(General Education), Ministry of Education and Dr. Md Abdul Wadud, professor, Department of Economics, Rajshahi University.  

Third paper presented at the event was “ Role of Banking Accessibility in Economic Growth: A cross Country Evidence,” which was co-authored by Nabeel Maqsood, a Masters’ student, Applied Macro Econometrics, Department of Economics and Statistics, Korea University. 

Another paper presented at the event was “Assessing the impact of Demonetization in the informal sector in India; Evidence from Delhi, Chennai, Pune, Guwahati and Sant Kabir Nagar”, was co-authored by Adarsh Kumar, Department of Humanities and Social Sciences, Indian Institute of Technology, Guwahati. 

The fifth paper presented titled “Effectiveness of Macroprudential Regulations in Bangladesh”, was co-authored by Md. Zulkar Nayn, Deputy General Manager of Bangladesh Bank and Mohammad Shahriar Siddiqui, Deputy General Manager of Bangladesh Bank. 

Sixth paper presented was “Stochastic Behaviour of the Inter-bank Repo Rate in Bangladesh”, which was co-authored by Dr. Imam Abu Sayed, Deputy General Manager of Bangladesh Bank and his team.

Last paper of this session was “Single Digit Interest Rate: Bangladesh Perspective”, which was co-authored by Dr. Md. Habibur Rahman, General Manager of Bangladesh Bank and his team.