Lending at single-digit so near, yet so far

The interest on bank loans is not going to come down to single-digit rates right now. 

There is not much pressure from Bangladesh Bank to comply with it. 

As long as they cannot collect deposits from government organisations at 6 percent interest rate, it will not be possible for them to lower interest rates on lending to single-digit, said managing directors of different private banks.

However, they are trying to cut the interest rate on bank loans.

A meeting was held between Bangladesh Bank and the MDs on Sunday. 

The meeting was supposed to make a decision on effecting the interest rates on deposits and lending at six and nine percent respectively.

However, the central bank claimed that the meeting was not about fixing interest rate, rather it was a regular meeting between the BB and the MDs.

“Before the start of the meeting, managing directors told BB Governor Fazle Kabir: ‘How will banks provide loan at single-digit rates as they are bound to take deposits from government organisations at an interest rate of more than 10 percent?’,” a deputy managing director revealed this to The Business Standard. 

But the governor did not make any comment on this. 

Emerging from the meeting, BB spokesperson and Executive Director Md Sirajul Islam told journalists that the BB governor meets with the MDs every three months and this meeting was a part of that.

It discussed many issues apart from lowering of interest rates.

When asked about default loans and lowering of interest rates, he said the managing directors informed the governor about their progress in this regard.  

They said default loans decreased in the second quarter compared to the first quarter.

Banks are trying to cut the rate. They do not bother even if it has an effect on profit, Syed Mahbubur Rahman, chairman of Association of Bankers Bangladesh (ABB) and managing director of Dhaka Bank, told journalists.

He said, “If we get deposits at lower interest rates, we will disburse loans at lower rates”.

“The BB has asked banks to keep the default loans under 10 percent. We are trying to do that. The banks have informed that the bad loan will come down in the June quarter in comparison with the March quarter.”

Last year, the Bangladesh Association of Banks (BAB) decided to bring down interest rates on loans to 9 percent and 6 percent on three to six month deposits, which was supposed to take effect in July that year.

One year has passed but it did not come into effect.  

The central bank recently sent letters to managing directors of all non-government banks asking them to reduce interest rates.

But, after analysing statements of different banks, it was found that interest rates had gone up instead of coming down.

After the end of May this year, the average interest rate on deposits stood at 6.09 percent whereas it was 5.51 percent during the same time last year.

At the same time, the average lending rate rose to 10.27 percent in May this year, from 9.70 percent during the same month last year.  

According to the BB data, only 15 out of 40 non-government banks are offering an interest rate of six percent or less for deposits. The remaining 25 banks are offering interest rates between 6.17 and 9.87 percent.

Among the fourth generation banks, Padma Bank and NRB Global Bank are ahead in collecting deposits at higher interest rates.