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Scheduled banks are set to launch the much-talked about 9% interest rate on all types of lending, barring credit cards, from Wednesday under the instructions of the Bangladesh Bank (BB).
The BB on February 24 instructed banks to set a maximum 9% interest rate on all loan products except credit cards from April 1.
“The managing directors and CEOs of all banks informed us over phone that they would implement the 9% lending rate from Wednesday,” BB Executive Director Abu Farah Md Naser told Dhaka Tribune.
He said the country’s trade and business were now adversely affected due to the coronavirus pandemic. As a result, lending at 9% was a timely policy initiative during this crisis period, he added.
“No bank can ignore or skip the BB’s directives on implementing the 9% lending rate,” asserted Naser.
M Kamal Hossain, managing director of Southeast Bank said they already issued circulars to all its branches to begin the 9% lending from Wednesday.
“There is no scope of disagreement over the issue during the current grim economic situation, as trade and business are affected badly due to the coronavirus pandemic,” he added.
Implementation of the single digit lending rate would not be that difficult as the BB took several initiatives to increase liquidity in the money market, said Salehuddin Ahmed, former governor of the central bank.
On the other hand, now there was no pressure on banks to open letters of credit (LCs) at this crisis moment, he added.
On March 24, the central bank slashed repurchase agreement (repo) interest rate from 6% to 5.75% and cut banks’ cash reserve requirement (CRR) from 5.50% to 5% in an effort to boost banks’ liquidity during the coronavirus pandemic.
The banking sector will get an additional fund of Tk6,400 crore for slashing the CRR rate.
Salehuddin Ahmed predicted that banks would appeal to Bangladesh Bank to return to double digit interest rates from 9% when the current situation improved.
Now banks are facing deposit withdrawal pressure owing to the ongoing economic fallout of the virus, according to bankers.
The banking sector was now facing liquidity mismatch as depositors were withdrawing cash from banks to protect themselves from the ongoing crisis, said Mutual Trust Bank Managing Director Syed Mahbubur Rahman.
He also said despite 6% interest on deposit was not available, banks would implement the single digit lending rate because it was the government’s instruction.
Hopefully we would overcome this situation soon, Mahbub hoped.
The government and the BB had been pressing the banks to implement 9% lending rate and 6% deposit rate for the last one-and-a-half years till February.
In the pretext of the rates implementation, the owners of the banks realized a number of demands in the last couple of years.
As part of the government’s drive to enforce the rates, Financial Institutions Division on January 19 this year asked state-owned enterprises (SoEs) to deposit up to 50% of their surplus fund in private banks and non-bank financial institutions (NBFI).
State-owned companies will receive a maximum interest rate of 6% on deposits at private banks. On the other hand, the companies will receive 5.5% interest rate from the state-owned banks, as per the Financial Institutions Division notice.
(DT)
