Two-thirds commercial banks yet to bring down lending rate at 9%

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Bangladesh Bank building at Motijheel Mehedi Hasan/ Dhaka Tribune

According to the latest BB data based on August, Islami Bank, Pubali Bank, Prime Bank, Southeast Bank, Al-Arafah Islami Bank, Mercantile Bank, Bangladesh Commerce Bank, Trust Bank & ICB Islamic Bank brought down their lending rates to single digit

Above two -thirds of the commercial banks are yet to bring down the lending rate to single digit, although they promised to give effect the 9% rate from July 1, according to sources at the banking sector.

While most of the banks lowered their deposit rates to 6% or less, only 11 out of 40 banks have so far implemented their promise to lower lending rate. The remaining 29 banks have been charging high rates as they had charged before the July 1, according to Bangladesh Bank (BB) data.

Top bankers blamed higher deposit rates for their non-compliance of rate reduction decision. Former BB Governor Salehuddin Ahmed, however, said the pledge is not implementable since it was politically taken.

According to the latest BB data based on August, Islami Bank, Pubali Bank, Prime Bank, Southeast Bank, Al-Arafah Islami Bank, Mercantile Bank, Bangladesh Commerce Bank, Trust Bank & ICB Islamic Bank brought down their lending rates to single digit.

On the other hand, out of the remaining 29 banks, 14 banks charged over 10% interest on lending, five banks over 11%, seven over 12% and three banks lent at over 13%.

According to BB data, for commercial loan AB Bank charged between 9 and 15.50% , Farmers Bank from 14 to 17%, Modhumoti Bank from 11 to 14%,  Mutual Trust Bank from 12 to 15%, NRBC Bank from 11.50 to 14.50% & Uttara Bank charged between 11 and 14%.

For industrial loan, Brac Bank lent between 13 and 16%, Eastern Bank 11.50 to 14.50%  & Midland Bank from 13 to 16%.

As far as housing loan is concerned, Bank Asia charged clients from 11 to 14 percent, Megna Bank from 11. 50 to 14.50 percent, Ncc Bank charged at 12 percent, NRB Bank from 12 to 15 percent, NRBG Bank 13 to 15%, One Bank from 12 to 15%, Premier Bank from 12.50 to 15.50% & South Bangla Agriculture & commerce Bank charged from 12 to 15%, shows the data of BB.

For Consumer credit, Dhaka Bank lent between 10 and 13%,  Dutch-Bangla Bank from 10.50 to 13.50%, IFIC Bank from 11.50 to 14.50%, Jamuna Bank from 9 to 11%, Shahjalal Islami Bank from 13 to 16%, Prime Bank from 12 to 15%, Shimanto Bank from 9 to 13%, SIBL from 10.50 to 13.50%, Southeast Bank from 10 to 13%, Standard Bank from11.50 to 14.50%,City Bank at 13.50%, UCBL charged between 12.50 to 15.50%.

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

Talking to Dhaka Tribune, experts opinioned that the so-called pledge to bring down the lending rate to 9% was a political decision and that is why it remained unimplemented. While the bankers said that they cannot reduce rate as they have to pay higher rates on deposits, particularly those were taken earlier than the pledge made.

“Banks have started to bring down the interest rate to single digit but it would take time as they have to cut interest rate on deposit first,” Dhaka Bank Managing Director Syed Mahbubur Rahman told Dhaka Tribune. As per the BB data, the Dhaka Bank’s interest rate for lending in August was 10.66% and deposit rate at 6.47%.

Single digit lending rate is important for the industrialization but its quick implementation would not bring benefits rather it may pose threat to the stability of the banking sector, a banker told the Dhaka Tribune, who preferred not to be named.

As of June 2018, country’s banking sector had a combined non-performing loan of Tk 89,340 crore, which is another barrier to reducing lending rate, he said.

“In the open economy, we cannot fix interest rate on both lending and deposit. It may hit the profits of banks,” Former Bangladesh Bank governor Salahuddin Ahmed told Dhaka Tribune.

He termed the decision of bringing down the lending and deposit rates a political one.

“That is why, it is difficult to implement,”said Ahmed.

“As a regulator, the central bank has taken steps to inspect lending and deposit rate of private commercial banks” BB spokesman Sirajul Islam told Dhaka Tribune.

“As a part of our measures, we have sent letters to banks to implement the rates and warned of taking action in non-compliance of the directive.”

Source: Dhaka Tribune.

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