BAB for lifting interest rate cap on CMSME loans

The Bangladesh Association of Banks (BAB) has requested the Bangladesh Bank to withdraw the interest rate cap on the CMSME and unproductive sector loans, luxury item producers, and import-based industries that do not add value locally.

The association of private bank owners and directors has also requested the central bank to adjust the national savings certificate interest rates.

This comes at a time when inflation hit 7.56 per cent in June, the highest in nine years, and the central bank increased the policy interest rate to 5.5 per cent that month. The policy interest rate was raised to tame inflation.

A BAB team led by its Chairman Md Nazrul Islam Mazumder gave Governor of the Bangladesh Bank Abdur Rouf Talukder a letter during a courtesy meeting on Wednesday.

Nazrul told The Business Post banks are unable to attract depositors even after offering a 6 per cent interest rate.

“Some banks are not getting depositors even after offering 7-8 per cent. That is why banks are facing a liquidity crisis. In this situation, if the 9 per cent interest on loans continues, banks will face losses,” he explained.

On February 24 in 2020, the central bank imposed a 9 per cent limit on interest rates, except for credit cards. It did so at the request of business communities.

Wednesday’s letter said the decision to impose the 9 per cent cap was correct but banks would suffer if this rate is not increased considering the current inflationary pressure. The 9 per cent cap could be kept for agriculture, small and medium industries; export-oriented manufacturing; and imports of raw materials for exports and employment generating industries.

Apart from these, if other sectors’ lending rates are increased under specific policies, that will reduce credit distribution and help curb inflation.

The BAB also said raising bank deposit rates would not be fruitful if the savings certificate interest rates are not adjusted accordingly. Otherwise, it will be challenging for banks to collect deposits.

The current savings certificate interest rate is over 11 per cent on average while the bank deposit rate is 4-6 per cent.

As for lifting the interest rate cap on CMSME and retail loans, the BAB said the cost of funds for such loans is much higher. That is why it is difficult for banks to survive by lending to these sectors at 9 per cent.