Single-digit lending rate help boost private sector investment

DHAKA, Feb 11, 2017 (BSS)- With the average interest rate against bank lending coming down to single-digit, economists, bankers and businesspeople are optimistic about a surge in private sector investment that will help take the country's economic growth to a sustainable level.

According to Bangladesh Bank data, average lending rate of all banks stood at 9.93 per cent in December 2016 against 11.18 per cent one year ago while weighted average deposit rates of all banks came down to 5.22 per cent in December 2016 from 6.34 per cent a year ago.

"Most of the banks are now offering credit to their clients at single digit interest rate as BB is continuing ethical pressure to banks to bring down the lending rate in single digit," said BB's economic adviser Dr Md Akhtaruzzaman.

He said BB has taken different initiatives in its Monetary Policy Statement (MPS) to bring down the lending rate in line with the expectation of the business community.

He also said the private credit growth, a major pulse of economic activities, grew by 15.55 percent in December 2016. The downward trend of lending rate is likely to expedite the private sector credit growth further, he added.

Additional Managing Director and COO of Mutual Trust Bank M Hashem Chowdhury also echoed the hope saying that MTB has already been offering credit to their good clients at 9 per cent interest.

"BB is playing a vital role through MPS, money market and call money market to reduce the lending rate. The interest rate would come down further if we can free the banking sector from Non Performing Loan (NPL)," he said.

As the big borrowers such as garments and textile sectors are rate 'sensitive', Southeast Bank Limited (SEBL) is offering 9 per cent lending rate for the industrial clients, said Senior Vice President of SEBL Abdul Quaium Chowdhury.

Executive Director of Centre for Policy Dialogue (CPD) Mustafizur Rahman said the downtrend of lending rate would further speed up investment as lending rate is one of the major expenses of investment.

He also underscored the need for ensuring gas, electricity and other basic needs to expedite private sector investment.

FBCCI President Abdul Matlub Ahmed said maximum lending rate should be fixed at 9 per cent for all sectors. But some banks are still charging 10 to 15 percent interest rate for many sectors including Small and Medium Enterprise (SME) which is illogical. "The central bank should take necessary action against those banks," he added.

According to the BB data, the average interest rate on advance of the state-owned banks has come down to 9.19 per cent in December, which was 10.08 per cent in the same period of previous year.

Of the six state-owned commercial banks, four are lending at single digit interest. The banks are- Agrani, Sonali, BASIC and Bangladesh Development Bank. Of the state-owned banks, BASIC bank is now lending at the lowest 6 percent as of December compared to 7.28 percent in the same period of the previous year.

The two specialised banks Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank have also slashed down their lending rates to 8.76 and 9.4 per cent. Of the private commercial banks, 15 have brought down their average interest rate on advance at single-digit. The banks are- Islami Bank, The City Bank, UCBL, Pubali, Shimanto, Eastern, NCC, Prime, Southeast, Dhaka, Al-Arafah Islami, Dutch-Bangla, Bangladesh Commerce, Trust and ICB Bank.

The weighted average lending rate of private banks came down to 10.24 per cent as of December 2016 compared to 11.65 percent in the same month of 2015.

Foreign banks are also ahead in the race of cutting down the lending rate to compete with the local banks. The lending rate of foreign banks came down to 8.21 per cent as of December 2016 compared to 9.74 percent in the same month of the previous year.

Source: Bangladesh Sangbad Sangstha (BSS)