Friday, April 26, 2024
Bank loans have become costlier in recent months as lending rates are rising although the Bangladesh Bank has not yet lifted the lending rate cap.
Lending rates are rising due to several reasons, including slow deposit growth, liquidity crunch caused by the forex crisis, and skyrocketing inflation.
Sources said the central bank is likely to withdraw the lending rate cap in July to meet the conditions of the International Monetary Fund (IMF) as part of the $4.7 billion loan programme. However, banks have already raised their lending rates.
In March this year, the weighted average lending rate stood at 7.31 per cent, up from 7.27 per cent a month earlier, as per the Bangladesh Bank data. The rate was 7.22 per cent in December last year and 7.11 per cent in August that year.
Industry insiders said the lending rate has been on the rise in recent months mainly because fund mobilisation has become costlier due to growing inflation.
They said the current crisis in the foreign exchange market is the key reason behind the high cost of fund mobilisation.
The weighted average lending rate at NRB Bank stood at 9.07 per cent in March while its weighted average deposit rate was 5.83 per cent.
In the same month, the weighted average lending rate was 9.06 per cent at Community Bank Bangladesh and 9.05 per cent at Citizens Bank.
Moreover, the central bank data shows the average lending rate in March was 8.8 per cent at Bengal Commercial Bank, 8.89 per cent at Shimanto Bank, 8.56 per cent at NRB Commercial Bank, 8.28 per cent at Standard Chartered Bank Bangladesh, and 8.55 per cent at Probashi Kallyan Bank.
The weighted average lending rate has increased since the central bank’s decision to withdraw the lending rate cap on consumer loans.
The central bank in January this year relaxed the lending rate cap on consumer loans, allowing banks to raise it by up to 3 percentage points from the current level.
This means banks can charge up to 12 per cent interest on consumer loans instead of the previous 9 per cent, as per the monetary policy.
Meghna Bank Managing Director and Chief Executive Officer Sohail RK Hussain told The Business Post, “At a time when we are collecting deposits at more than 7 per cent and there is also a cost of default loans and provisioning, how can we disburse loans at 9 per cent?
He said fund mobilisation costs have increased in recent times due to the inflationary pressure.
Inflation increased to 9.33 per cent in March this year from 8.78 per cent in February, Planning Minister MA Mannan told reporters recently.
Dhaka Bank Managing Director Emranul Huq said the growing inflation impacted banks’ deposit growth because small depositors are now withdrawing their money from banks to cover their living expenses, which have spiralled out of control due to hikes in the prices of essential commodities.
BB to lift single digit lending rate soon
As per the government decision, the Bangladesh Bank set the highest lending rate at 9 per cent in April 2020.
But the banking regulator has announced to withdraw the single digit lending rate in the upcoming monetary policy in July this year to meet the IMF conditions.
Addressing a session of the Bangladesh Business Summit at Bangabandhu International Conference Centre, Bangladesh Bank Governor Abdur Rouf Talukder recently said, “We are working on developing a market-based reference rate. On top of that, we will give a corridor for lending rates.”
