Welcome to Business Outlook
Related Articles
The finance ministry has instructed government agencies not to keep any deposit with banks at 6 percent that fails to lend at 9 percent, creating further chaos in to the banking system that is already reeling from a liquidity crisis.
Deposits from the government and autonomous institutions account for 15-20 percent of the deposits in the banking system, according to the Association of Bankers, Bangladesh, a platform of private banks’ chief executives.
At present, none of the banks are able to offer the interest rates stipulated by the finance ministry, so its missive on Monday has been viewed by analysts and bankers as the ministry trying to strong-arm banks.
“The finance ministry cannot impose any ceiling of interest rate bypassing the central bank,” said Ahsan H Mansur, executive director of the Policy Research Institute.
The move not only ignored the central bank’s regulatory power but also contradicts the open market system that determines the interest rate on deposits and lending. “The ministry even should not impose such a decision on the state banks even though it enjoys their ownership,” said Mansur, also a former economist of the International Monetary Fund.
Earlier in August last year, the finance ministry took a decision to keep 50 percent of the government deposits in private banks and 14 non-bank financial institutions in contrast to the previous ceiling of 25 percent.
The decision came following assurance from the Bangladesh Association of Banks (BAB), an organisation of private banks’ sponsors, to keep the interest rate on deposits and lending at 6 percent and 9 percent respectively. “But, the management of the banks cannot function on the whims of BAB,” he said.
The directive comes at a time when lenders are offering interest rates of 11-12 percent to attract deposits, as a result of which the interest rates on lending have gone up to 12-16 percent.
Asked whether the ministry issued such an instruction for the banking sector, Md Serajul Islam, spokesperson and executive director of the Bangladesh Bank, said: “Banks should be allowed to run their business following the structure of the open market economy.”
With some exceptional cases, no government agency has so far kept their deposits at 6 percent interest with lenders, said Syed Mahbubur Rahman, chairman of the ABB.
In reality, the government and autonomous organisation are now parking their deposits at 10 percent and above with lenders, he said.
“We want to disburse loans at 6 percent. But, how is it possible?”
source (TDS)
