Wednesday , 18 July 2018

Interest rate on bank loans must be cut

Dr Salehuddin Ahmed, Former Governor, Bangladesh Bank: The move to fix bank loan interest rate at 6% was not right. Bankers say they would fail to attract depositors just because of the interest rate. So why did they agree to do so? This is not right. Now they say they cannot grant 9% defaulted loan.
The profit margin has to be brought down, to cut the interest volume. If they cannot, they can hold talks on the issue. The other think they can do is that they can skip the 6% deposit issue. If they first reduce the bad loan, then cut the profit margin and unnecessary costs, lessening the problem. It is not possible to cut interest rate below 6% in Bangladesh. There is an interest different of 5%— a fact which is not acceptable at all. The sum has to be brought down to 3-4%.
Profit is a big target for every bank, which does not benefit the businessmen. A massive sum of money is wasted through the salaries, decoration and canvass among other spending, for which their profit margin plummets. So the crisis is tried to be resolved through excessive interest or profit.
Curtail of other expenses will help resolve the problem as well.
If the state-run banks have additional savings, they can help from there.
But it cannot happen that they take money at a low interest rate. If they rely heavily on the government, there is of them.
Only government banks will do.
Interest rate on investment is 9%. This is a national level decision, which needs implementation.
There has to be enough liquidity. Government deposit has been ordered to be kept in 50% private banks— an order that is yet to be conformed completely.
It was demanded that 5-6% interest be sourced from the deposited money.
It has to be made it public by the government that the public and private banks demand funds based on a higher interest rate.
Moreover, the government-run commercial banks have liquidity. Portion of the liquidity has to come to the private banks, but this is an uphill task.
Based on an interview by Muhammad Nayeem, translated by Sayeed Muhammad

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