• Monday, Aug 19, 2019
  • Last Update : 01:56 am

Most private banks break promise of lending rate cut to 9%

  • Published at 04:32 pm April 11th, 2019
web-Bangladesh bank-bb
The Bangladesh Bank building at Motijheel Mehedi Hasan/ Dhaka Tribune

Former BB Governor Salehuddin Ahmed, however, said the pledge made about interest reduction was not implementable since it was a political decision

Most of the private commercial banks are yet to bring down their lending rates to single digit, although they had promised to implement 9% rate from July 1, 2018. 

Only 12 out of 40 private commercial banks have so far kept their promise. 

According to the BB data of February, Islami Bank Bangladesh, National Bank, United Commercial Bank, Pubali Bank, Uttara Bank, Prime Bank, Southeast Bank, Al-Arafah Islami Bank, Mercantile Bank, Bangladesh Commerce Bank, Trust Bank and ICB Islamic Bank brought down their average lending rates to single digit. 

However, most of the scheduled banks lowered their deposit rates to 6% or even less.

The remaining 28 banks have been charging high rates as they did before July 1, 2018, according to Bangladesh Bank (BB) data.

Out of the remaining 28 banks, 14 charged over 11% average interest on lending while 7 lent at over 12% rate, said the BB’s February data. 

Top bankers have blamed higher deposit rates for their failure to reduce the lending rate along with their soaring defaulted loans, which involves keeping provision with the central bank.

Former BB Governor Salehuddin Ahmed, however, said the pledge made about interest reduction was not implementable since it was a political decision.

On March 31, 2019, Prime Minister Sheikh Hasina said the government would take measures to reduce the interest rates for the sake of industrialization. 

"We will sit again to discuss how to reduce the interest rate of bank loans," she had said while inaugurating the week-long first national industrial fair in Dhaka.

She said the government had earlier taken initiatives to reduce the rates and provided some facilities to the banks. "Some banks brought down the interest rate to 9% accordingly, but all did not do so," she added.

As per banks’ financing in March, AB Bank and Exim Bank lent at the rates of 15.50% and 16% respectively for trade financing, Dhaka Bank and Mutual Trust Bank at 13.50% and 14.50% respectively for housing loan while Bank Asia and BRAC lent at 13% and 13.50% respectively for consumer credit.

On June 20, 2018, owners of private commercial banks decided to bring down the lending rate to 9% and deposit rate to 6% from the existing levels. They had pledged to implement the new rates from July 1, the first day of fiscal year 2018-19.

Talking to the Dhaka Tribune, experts observed that the so-called pledge to bring down the lending rate to 9% was a political one and that was why remained unimplemented.  

Bankers have said that they cannot reduce rate as they have to pay higher rates on deposits, particularly those which were taken before the pledge was made.

NRB Commercial Bank Managing Director and CEO Khondoker Rashed Maqsood says that interest rates depend on market forces and should not be fixed under any circumstances. 

“To collect deposits, we have to pay more interest; therefore the interest rate for lending cannot be reduced. It is possible to reduce the lending rate if we get deposits from government organizations at 6% rate.”