Published:  02:21 AM, 09 November 2018

Single digit interest rate still a far cry


Most banks and financial institutions have not yet implemented the single digit interest rate on loans. More time is needed to implement the new initiative, analysts and bankers have said.

They came up with the observation at an annual banking conference organized by the Bangladesh Institute of Bank Management (BIBM) at its auditorium in the city yesterday.They said, "Most banks have huge amounts of default loans, which is taking toll on the implementation of single digit interest rate announced by the government." 

The government has taken an initiative to bring the interest rate down to single digit with an aim to develop of the country's economy. But, most of the banks could not implement the directive.

Cost of funds, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) management, administrative expenditures and default loans are obstacles to the reduction of interest rate, experts added.

Muhammad Habibur Rahman, General Manager of Bangladesh Bank (BB) presented a research paper, in which he mentioned that the average interest rate in the banking sector was 9.54 percent in 2017, which was 10.26 percent in the year before. 

On the other hand, the average default loans were 11.54 percent in 2016, which came down to 11.41 percent in 2017. It is not possible to bring down the rate of interest to a single digit within a short time. Single digit interest rate implementation will take some time, he said.

Helal Ahmed Chowdhury, Supernumerary Professor of the BIBM said only an announcement cannot lead to implementation of the single digit interest rate. There are a number of issues for implementing the single digit rate of interest.Default loans are the biggest challenge among them. The unhealthy competition among banks is another barrier to implementing the move.

Yasin Ali, Supernumerary Professor of the BIBM said that a number of banks are making investments in the share market. For this reason, the banking sector is getting chaotic. If they are not brought under control, default loans cannot be reduced.

"In recent times, we have witnessed some economic disasters including collapse of the stock market, reserve heist from the central bank and the abnormal rise of default loans. Within a short time, these will be resolved. To solve these problems, every bank should have its own guidelines." 


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