Only 4 banks offer loan at single-digit interest
Lenin Rahman: Strong political commitment is a must to offer single-digit loan for facilitating business community and boosting economy of the country, said experts.
Considering the necessity of single-digit loan in promoting country’s economy, the Bangladesh Bank (BB) held an internal meeting yesterday in order to undertake special strategy for reducing lending rate and NPL as well as ensuring good governance in the banking sector, said banking sources.
Bangladesh Bank is going to undertake special strategy to bring back discipline in the banking sector under the instruction of the finance minister AHM Mustafa Kamal, they said.
In this regard, high officials of Bangladesh Bank holds the meeting, in which Governor Fazle Kabir presided over the meeting, said the sources adding the meeting will also cover the possible ways to recover NPL and to ensure single-digit loan and good governance in the banking sector.
Recently, the finance minister and a key adviser of the prime minister came up with big promises to improve the business climate, reduce the interest rate on lending, bring down classified loans, boost revenue income and develop the capital market. They vowed to carry on the promises for boosting economic growth and to live up to the expectations of the private sector.
Meanwhile, Only four banks including ICB Islamic Bank, Bangladesh Commerce Bank, United Commercial Bank and Islami Bank Bangladesh Limited have provided loans at the ‘single digit’ rate of 9 percent or below in December last.
The average lending rate of private commercial banks was 10.27 percent, followed by 6.75 percent for state-owned banks, 7.56 percent for specialized banks and 9 percent for foreign commercial banks, according to the data of Bangladesh Bank.
Bankers said private banks have failed to provide loan in single-digit interest rate due to capital and provision shortfall and rising of NPL significantly since last year.
Sources claimed, although Bankers Association of Bangladesh (BAB) declared to bring down lending rate at single digit from July 1 last year but maximum banks have failed to provide such lending rate violating the instruction of BAB and Bangladesh Bank (BB).
Finance Minister AHM Mustafa Kamal told the Daily Industry that the government is dedicated to ensure good governance in the banking sector. “Already, we instructed BAB and Bangladesh Bank to reduce lending rate and NPL at any cost which is one of the major election manifestos of the ruling government. We want to establish a sound financial sector and capital market for attaining a sustainable economy” said the minister.
“After taking charges, I recommended BAB to resolve the issue of NPL and to ensure loan in single-digit interest rate. I hope, people would see a visible improvement of the banking sector soon”, said the minister.
Talking on default loan, the minister said, already the finance ministry has formed three committees to conduct special audit to bring back discipline in the state-owned commercial banks.
Md Ehsan Khasru, managing director of Padma Bank (formerly Farmers Bank) said cost of fund, market rates and competition, demand and supply of loanable fund, regulatory compliances are major reasons hindering the implementation of a single digit rate by the banks.
Cost of fund is one of the major factors to offer single-digit loan, he said. “Although banks declared to lower the lending rate to 9 percent, it is difficult to implement the single digit interest rate on lending but we are sincerely working to offer loan at single-digit for facilitating the industrialsation in the country”, Khasru said.
Talking to Daily Industry, Dr Salehuddin Ahmed, former governor of Bangladesh Bank told that most of the loans particularly in consumers’ credit, construction, transportation, trading, green and SME finances are being charged at higher than 9 percent interest rate.
Banks cannot reduce the spread, he said adding Bangladesh Bank should have more effective roles in this regard, he added.
Strong political commitment is needed to fix single-digit lending rate as well as to reduce NPL from the banking sector to attain vibrant economy of the country, Ahmed observed.
On the other hand, top business leaders and economists have underscored the need for proving single-digit interest rate with a view to enhancing private sector growth. The single-digit lending rate would help to boost industrialisation as well as boost economy of the country, they pointed out. They claimed that single digit interest rate in the country is still a term only in book.