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Single digit implementation of bank loans is far cry

The government has fulfilled at least five demands from the private banks against the decision that they would implement single-digit lending rates but their commitment remains unfulfilled.

Officials said that most of the private commercial banks failed to implement the decision made by the government during its immediate past tenure in order to boost private investment.

Private investment being stagnant at 23 percent of the gross domestic product for the last one decade has been a great worry for the government.

According to the Financial Institutions Division, only 11 banks, mostly state-owned ones, have so far reduced their lending rate to single digit.

The remaining private banks still charge more than 12 percent interest rates.

Meanwhile the prime minister and the finance minister have reminded the Bangladesh Association of Banks, which represents the private bank owners, several times in last 16 months of implementing the decision.

Experts, however, commented that these banks would never be able to charge single digit interest rate without reducing their operational costs badly influenced by inefficiency and the non-performing loans.

Incentives to the bank owners would not help the government in creating the much-needed enabling environment, said former Bangladesh Bank chief economist Mustafa K Mujeri.

FID officials said that the government in January 2018 amended the Bank Company Act 1991 in parliament allowing four members of a family to be directors of a bank, up from the previous two.

The amendments, pursued by Bangladesh Association of Banks since 2016, also allowed the directors to stay in their positions for three consecutive terms, or nine years, an increase from earlier two-terms or six years.

Following a demand from the same association, the Bangladesh Bank also lowered the mandatory cash reserve requirement of commercial banks to 5.5 per cent of their deposits from 6.5 per cent.

Besides, the government fulfilled the bank owners’ demand for raising the deposit by the government agencies of their fund in private banks to 50 per cent from the previous 25 per cent.

Even the government has contained the sales of saving certificates since July as the bankers alleged that the popularity of saving certificates caused a liquidity crisis for them.

Former Bangladesh Bank governor Salehuddin Ahmed explained that both non-performing loans and inefficiency increased the operational costs of these banks and the banks passed it on to the borrowers.

He observed that checking bad loans would be one of the main criteria for creating an enabling atmosphere for the banks.

Meanwhile, the amount of defaulted loans from the banks swelled to Tk 1,16,288 crore in September from Tk 1,12,425 crore in June as the special loan rescheduling policy encouraged borrowers to be chronic defaulters, said officials quoting Bangladesh Bank data.

They mentioned that finance minister AHM Mustafa Kamal was scheduled to sit with the managing directors of the private banks on Sunday to review the implementation status of the single-digit interest rate.

In July top executives of banks told the central bank at a meeting that the lending rate depended on the market situation and banks were even paying double-digit interests to collect deposits due to the market situation.

They asserted that the banks might implement the decision but that would not bring the desired result.

Association of Bankers, Bangladesh chairman Syed Mahbubur Rahman said that the single-digit rate would be implemented gradually.

News Room, Dec 1, 2019