Economic Reporter :
Economists and business people have expressed mixed reactions over the initiative of Bangladesh Association of Banks (BAB) to bring down the lending rate to single digit.
The association of private commercial banks at an emergency meeting on Thursday decided to bring down the lending rate to single digit and deposit rate of the three months tenure at six percent from July 1, the beginning of fiscal year 2018-19 (FY19).
Former advisor to Caretaker Government Dr AB Mirza Azizul Islam welcomed the decision of BAB, saying that the initiative will help to boost private sector’s investment that will ultimately help country’s economic growth to a sustainable level.
“As the government has offered several incentives to the banking sectors recently, the lending rate should come down in the single digit,” he added.
Recently, BB has re-fixed the CRR at 5.5 percent for commercial banks on bi-weekly average basis from 6.5 percent. To tackle the liquidity crisis in the sector, the government has also taken a decision to allow state agencies to deposit 50 percent of their funds rather than 25 percent in private banks.
Finance minister AMA Muhith has also proposed to reduce the corporate tax rate for banks and Financial Institutions (FIs) by 2.5 percent in the budget for FY19.
Azizul Islam said there is a scope for banks to cut the lending rate as the government has already reduced the CRR rate, which will help to meet the liquidity crisis in the banking sectors, but side by side, the banks should not lower the deposit rate.
Former Bangladesh Bank Governor Salehuddin Ahmed said taking initiative to lower lending rate does not go with the market economy as the interest rate depends on market.
He said lowering the deposit rate is also not logical as the inflation is around six percent. “Banking industry should reduce their operating cost and other expenses . . . they should be more active to reduce the huge amount of Non Performing Loan (NPL). If they can do so, the interest rate will normally go down,” he added.
Policy Research Institute (PRI) Executive Director Dr Ahsan H Mansur said BAB’s decision does not match with the market economy. “So, I am doubtful about the implementation of the initiative,” he said, adding that the government has taken decision to reduce the corporate tax for banks and FIs by 2.5 percent in the next fiscal.
For reducing the corporate tax, the government will lose around Taka 500 crore to Taka 700 crore revenue in a year, said Ahsan H Mansur.
Welcoming the initiative of BAB, Acting President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) M Muntakim Ashraf said single digit lending rate will accelerate further the country’s both local and foreign investments.
“It is a good decision. We have demanded it in many dialogues, seminars and conferences. The initiative will boost up the country’s economy,” he added.
