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The 9 per cent and 6 per cent interest rates fixed respectively for lending and deposits have helped banks in improving their health, Finance Minister AHM Mustafa Kamal said yesterday.
The minister spoke while talking to journalists after a meeting of the cabinet committee on public procurement.
He said the financial condition of private banks has improved a lot and most banks have a healthy balance sheet, which is enabling them to pay dividends.
At the same time, the health of government banks has also strengthened and now they do not need to look to the government budget to meet their capital shortfall, Kamal said.
“Banks will not be able to pay dividends if there is no profit. You have always said that banks do not pay dividends.
They don’t pay cash dividends, they just pay stock dividends.”
“Banks have avoided dividends in many ways before. But now the banks are in good shape and they pay dividends,” he said.
Earlier, public banks used to take money from the government for refinancing, but for the last two to three years they have been doing it with their own funds, he said.
“Now there is no scope for refinancing. We have also made it clear to the banks in the government sector that you have to make money. You have to spend by earning. Depending on the government will not work. They have been able to do that.”
The 6 per cent and 9 per cent interest rates are set considering not the perspective of Bangladesh, but the situation around the world.
“These interest rates are low compared to other countries of the world. If our competitors trade at a lower interest rate, then their cost of production is lower. We have determined this interest rate keeping those factors in mind.”
In 1989, the World Bank proposed to reform the financial sector in Bangladesh.
As part of that, in the early 90s, interest rates were fixed based on the market first. Since then, loans and interest rates have been market-based.
During the tenure of the then finance minister AMA Muhith, an initiative was taken to fix the interest rate. And finally, the current finance minister introduced the rule of fixing interest rates and the Bangladesh Bank fixed the interest rates at 9 per cent and 6 per cent for lending and deposits respectively last year.
Kamal said, “If you keep money in banks all over the world, you will not get interest. Instead, the depositor has to pay interest to the bank.”
Bangladeshis who do business abroad do not get any interest if they keep money in banks there, he said adding, “That’s why they bring the money to Bangladesh and deposit it here.”
Meanwhile, in different countries of the world, no central bank fixes the interest rate. Usually, the interest rates are fixed through the market system.
(TDS)
