Shawdesh Desk:

Top executives of banks on Sunday informed Bangladesh Bank that bringing down the interest rates to single digit would not be possible now considering the liquidity situation in the country’s banking sector.

Some of the banks were even paying 9.5 per cent interest against deposits of state-owned entities and more than 10.5 per cent interest against term deposits, the bankers informed the BB at a quarterly bankers meeting held at BB headquarter in Dhaka with BB governor Fazle Kabir in the chair.

The top executives of banks also informed that the lending rate depended on market situation and banks were even paying double digit interest against deposits due to the market situation.

Even the private banks were taking loans from state-owned banks at 9 per cent interest, they said.

If forced, banks would implement the rates, but such forced implementation would not bring any positive result to the sector, the bankers said.

The bankers made the observations after Fazle Kabir at the meeting asked banks to implement immediately the single digit lending rate as per the announcement made by the bank owners, meeting sources said.

‘Private commercial banks would be able to reduce the lending rate below 10 per cent when they would get fund at the 6 per cent rate,’ BB executive director Md Serajul Islam told reporters after the meeting.

Private commercial banks require private fund as well as fund from the government to bring down the rate to the desired level, Serajul, also the BB spokesperson, said.

‘They [top executives of private banks] have assured us that they would implement the directive when the demand and supply will match,’ he said.

Apart from the availability of deposits at the rate of 6 per cent, bringing down the nonperforming loans (NPL) is another tool in implementing the 9-per cent lending rate by the private banks, said Serajul, adding that the banks were also trying to bring down the NPL as well.

Asked whether the central bank would take any regulatory measure against the banks for the non-implementation of deposit rate at 6 per cent and lending rate at 9 per cent, the BB executive director said that the central bank would observe whether the banks were implementing the rates as per their commitment or not.

He also mentioned that almost all the state-owned banks along with some private banks had implemented the interest rates, while the rest of the banks were trying to implement the rates gradually.

Asked whether there was any pressure from the central bank in implementing the lending rate, Association of Bankers, Bangladesh chairman Syed Mahbubur Rahman that the decision was not imposed by the central bank rather it was the decision of the bank directors.

The central bank has just inquired about the implementation status, he said.

Mahbubur also said that increasing liquidity pressure in the market was the main problem in implementing the single-digit interest rates.

He also mentioned that the launch of online-based national savings certificate sales and the provision of national identity number for purchasing had helped reduce NSC sales and the sales would decrease further. Such fund would gradually go to the banks, Mahbubur, also the managing director of Dhaka Bank, said.

‘We all want to implement the single-digit interest rate as the lower rate of lending rate helps economic growth,’ Mahbubur said.

Considering the economic impact, the meeting discussed how the rate could be brought down, he said.

It’s not a matter of a single bank instead all the banks and depositors will have to work to implement the rate, he said.

The ABB chairman also assured that the rate would be implemented gradually.

He also said that the existing situation of the banking sector, offshore banking functions and the economy, dissemination of loans to micro, cottage and small entrepreneurs were also discussed in the meeting apart from the implementation of 6-9 per cent interest rates.

Speaking about the state of NPL, the ABB president said that the representatives of state-owned banks, private banks and the Shariah-based banks had informed the meeting that they had witnessed a notable fall in NPL.

He expected that the NPL would decline significantly at the end of June quarter but might not come down below 10 per cent now.

Former finance minister AMA Muhith on August 2 last year declared that the lending at nine per cent and deposit rate at six per cent would come into effect from August 9 last year after the previous deadline of July was missed.

On July 8 this year, BB suggested that the managing directors of commercial banks bring down the deposit and lending rates to 6 per cent and to 9 per cent respectively.