Economic Reporter :
The central bank has decided to cap the interest rate on industrial loans at Single-digit to boost private investment in the economy leaving mixed reactions.
The decision came at a board meeting of the central bank at the Bangladesh Bank headquarters in Dhaka on Tuesday.
Welcoming the decision, Businesses said that the measure would give a shot in the arm of the industrial sector and give them respite from the burden of higher interest rates.
But bankers and experts, however, expressed their concern and said it would have a negative impact on the banking sector as lenders will shy away from disbursing loans to the industrial sector due to the lower interest rate.
Banks now charge interest rates between 12 percent and 14 percent for industrial loans, creating a difficult situation for the manufacturers, according to an entrepreneur.
But they will have to give out loans to the manufacturing sector at single digit interest rate from January 1, said Md Serajul Islam, spokesperson and an executive director of the central bank while briefing journalists after the meeting.
The banking regulator will issue a notice within a day or two to make the decision effective, he said.
A board member of the banking watchdog, on condition of anonymity, said banks would be given some financial supports to implement the initiative.
For instance, the government will park its project funds in the current account with lenders so that they do not need to give any interest to state-run agencies, he said.
Dr Rubana Huq, President of the Bangladesh Garment Manufacturers and Exporters Association, said “The decision to bring down the lending rate would help export-oriented industries to mitigate existing crisis.”
“The production cost in the readymade garments sector increased by 30 percent in the last four years. Similarly, the export earnings have continued a downward trend in recent period,” she said.
But banks are in a panic because of the single-digit interest rate, as it will hit their profit.
Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh, said, “Every bank will see a profit decline ranging from Tk 150 crore to Tk 200 crore per year because of the implementation of the lower rate.”
“The economy will get a boost but banks will fall into a crisis,” said Rahman, also Managing Director of Mutual Trust Bank. Faruq Mainuddin Ahmed, managing director of Trust Bank, said banks would feel discouraged to disburse loans to the industrial sector because of the lower interest rate.
“As a result, industrial loans will grind to a halt, which will impede the growth of the industrial sector,” he said.
Khondkar Ibrahim Khaled, a former deputy governor of the central bank, said the interest rate cap contradicts the stance of the BB.
The central bank had earlier announced that banks would fix the interest rate, while the BB would monitor it, he said.
“The interest rate will go down automatically if default loans can be checked,” the former BB governor added.
The central bank has decided to cap the interest rate on industrial loans at Single-digit to boost private investment in the economy leaving mixed reactions.
The decision came at a board meeting of the central bank at the Bangladesh Bank headquarters in Dhaka on Tuesday.
Welcoming the decision, Businesses said that the measure would give a shot in the arm of the industrial sector and give them respite from the burden of higher interest rates.
But bankers and experts, however, expressed their concern and said it would have a negative impact on the banking sector as lenders will shy away from disbursing loans to the industrial sector due to the lower interest rate.
Banks now charge interest rates between 12 percent and 14 percent for industrial loans, creating a difficult situation for the manufacturers, according to an entrepreneur.
But they will have to give out loans to the manufacturing sector at single digit interest rate from January 1, said Md Serajul Islam, spokesperson and an executive director of the central bank while briefing journalists after the meeting.
The banking regulator will issue a notice within a day or two to make the decision effective, he said.
A board member of the banking watchdog, on condition of anonymity, said banks would be given some financial supports to implement the initiative.
For instance, the government will park its project funds in the current account with lenders so that they do not need to give any interest to state-run agencies, he said.
Dr Rubana Huq, President of the Bangladesh Garment Manufacturers and Exporters Association, said “The decision to bring down the lending rate would help export-oriented industries to mitigate existing crisis.”
“The production cost in the readymade garments sector increased by 30 percent in the last four years. Similarly, the export earnings have continued a downward trend in recent period,” she said.
But banks are in a panic because of the single-digit interest rate, as it will hit their profit.
Syed Mahbubur Rahman, Chairman of the Association of Bankers, Bangladesh, said, “Every bank will see a profit decline ranging from Tk 150 crore to Tk 200 crore per year because of the implementation of the lower rate.”
“The economy will get a boost but banks will fall into a crisis,” said Rahman, also Managing Director of Mutual Trust Bank. Faruq Mainuddin Ahmed, managing director of Trust Bank, said banks would feel discouraged to disburse loans to the industrial sector because of the lower interest rate.
“As a result, industrial loans will grind to a halt, which will impede the growth of the industrial sector,” he said.
Khondkar Ibrahim Khaled, a former deputy governor of the central bank, said the interest rate cap contradicts the stance of the BB.
The central bank had earlier announced that banks would fix the interest rate, while the BB would monitor it, he said.
“The interest rate will go down automatically if default loans can be checked,” the former BB governor added.
