Editorial
Breathing fresh air into business
Banks' increased responsibility emphasised
GOVERNOR, Bangladesh Bank, in a meeting with chief executives of commercial banks, has announced a few steps to bolster investment and export currently pitted against a dampening of demands in the context of global financial downturn. These mainly include cutback on the lending rate to 13 percent and the loan rescheduling facility without down payment for six months in such sectors like garment, frozen food, leather, jute, textile and tea.
The 13 percent cap on the lending rate is effectively 1.75 percent less than the existing 14.75 percent in the productive sector. But in case of all other loans the rate of interest has been as high as 18 percent. There is a caveat though, the lower interest rate would not apply to credit card and consumer loan.
The central bank's intervention was inevitable against the backdrop of persistent demand from the business community to reduce the spread between the deposit rate and the lending rate which is the widest in the region and the economic experts' repeated nudges to go for it. The banks, however, got cold feet, even though their profitability has been quite considerably high. The banking sector is apt to argue that in order to lower lending rate it has to reduce the deposit rate. But to be doing so, risks a fall in deposit which is hardly desirable. So, what do we do? The answer lies in reducing banks' profit margins, or rather spreading profits over a raft of services and yet prosper as the banks go on reaping dividends from the growth of productive, export, commercial and service sectors of the economy.
What would be crucial in interest rate adjustment is, however, keeping the inflation rate low, so that the value of money is not eroded and a fillip is provided to saving.
Leaders of the business community want the lending rate reduced to a single digit. But, to our mind, since the loan rescheduling facility will help increase cash flow into the industrial and manufacturing sectors, this factor together with the cut in the lending rate should be on the whole helpful in steadying investment and export.
For all latest news, follow The Daily Star's Google News channel.
Comments