'The supervision costs of SME financing are very high compared to other sectors'
Bankers have called for keeping the rate of interest on loans to small and medium enterprises (SMEs) higher than the single digit (9%) lending rate for bank loans as set by the Bangladesh Bank (BB).
The bankers made the call at a dinner and reception held in the city on Monday in honour of Finance Minister AHM Mustafa Kamal, as he has been selected as the Finance Minister of the Year by The Banker, a London-based magazine.
The Association of Bankers, Bangladesh (ABB) said bringing interest rates on SME loans down to single digit would be difficult, as the cost of lending in this sector was very high.
“The supervision costs of SME financing are very high compared to other sectors,” said Ali Reza Iftekhar, ABB chairperson and managing director at the Eastern Bank.
He said that most of the banks that lent money to the SMEs would find the single digit interest rate difficult to apply, as they lent money mostly to the NGOs (non-government organizations).
At the reception, Mustafa Kamal said that he would discuss the issue with Prime Minister Sheikh Hasina.
He asked the bankers to reduce their operating costs before the implementation of single digit interest rate in April this year.
Mohammad Nazrul Islam Mazumder, president at the Bangladesh Association of Bankers (BAB) and the chairman of Exim Bank, presided over the reception.
BAB president requested the finance minister to fix the interest rate on bank deposits of government organizations at 6%.
“If the banks don’t get enough of the government deposits, it would be difficult for them to apply 9% interest rate on loans,” he said.
On December 30 of last year, the finance minister postponed implementation of the much-talked-about single digit interest rate on bank loans until April 1 of this year, which was supposed to be implemented from January 1.
Mustafa Kamal announced the new deadline after a meeting with the bankers and bank executives in the capital.
Former Finance Minister AMA Muhith was the first to announce on August 2 of 2018 that the single-digit lending and deposit rates would come into effect from August 9, 2018.
The government has already met a host of demands of the bankers with the aim to facilitate the implementation of single digit interest rate on bank loans; however, the ABB has persisted in its opposition to implementing the new interest rate regime on various pretexts.