ABB against single digit interest rate for SME loans
The Association of Bankers, Bangladesh claimed that the cost of supervising SME loans are very high
The Association of Bankers, Bangladesh (ABB) on Monday said it did not want the interest rate of loans to be cut down to single digit for small and medium enterprises (SMEs).
Claiming such loans is very costly for banks, the association urged Finance Minister AHM Mustafa Kamal to consider their request.
The association, made up of chief executives of banks, made the request at a reception held at Gulshan in honour of Kamal being selected Finance Minister of the Year by The Banker, a London-based magazine.
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Ali Reza Iftekhar, chairman of the association and the managing director of Eastern Bank, explained that the supervision costs of SME financing are very high compared to other sectors.
He added that banks, which mostly lend to SMEs, will face difficulties in implementing a single-digit interest rate because they depend on NGOs to recover the loans. This NGOs are paid margins, which increases costs for the bank.
In reply to ABB's proposal, the finance minister said he would discuss the proposal with Prime Minister Sheikh Hasina.
Kamal also said banks have to try to reduce their operating expenses to be able to provide loans at single-digit interest rates from April 1 this year.
Bangladesh Association of Bankers President Mohammad Nazrul Islam Mazumder, also the chairman of Exim Bank, presided over the reception.
Mazumder asked for support from the finance minister to provide government deposits as promised to banks. He said if banks get government deposits they can implement the 9 percent interest rate.
Finance Minister Kamal also reiterated the commitment that private banks would get a 50 percent deposit of government bodies at 6 percent interest, while state-owned banks would get the rest of the deposit at 5.50 percent interest rate.
Previously, Mustafa Kamal had declared only the manufacturing sector would enjoy the single-digit interest rate from January this year. But the decision was changed after the prime minister wanted all sectors to enjoy single-digit interest rates.
Furthermore, deposit rates have also been capped at 6 percent for all banks.
At present, the interest rate in different banks is 11-14 percent for production sector, 9-16.5 percent for trading sector, 9-16 percent for small enterprise, 10-14 percent for house loans, 12-18 percent for a personal loan and 15-25 percent for credit cards, according to sources.
