Dhaka, Bangladesh (BBN)– Bangladesh’s apex trade body has expressed its deep concern over sudden rise in lending rates, saying that it will hamper the overall economic growth.
“The level of investment may stagnate gradually as the country’s overall business activities have fallen into a three-dimensional crisis due to inadequate liquidity supply, higher interest rates on lending and shortage of foreign currency,” the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) said in a statement on Saturday.
The commercial banks have started charging lending rates between 16 per cent and 20 per cent, after the withdrawal of the cap on lending rate by the central bank on March 9 last.
“The commercial banks have sent letters to different business firms imposing the higher rates of interest,” the FBCCI said, adding that the business entities will face financial losses because of the like in lending rates.
The apex trade body has formed a nine-member sub-committee, headed by its Vice-President Mostofa Azad Chowdhury Babu, to oversee the impact on businesses after withdrawal of the lending rate cap.
“The higher interest rate on bank loans or credits will push the country’s cost of doing business as well as affect the overall economic growth,” the FBCCI vice president said, adding that the FBCCI will soon meet the central bank governor and the finance minister in this connection.
“We’ll request the government to re-impose the ceiling on lending rate and bring down the interest rates on deposit to 9.0-12.0 per cent from the existing 13.0-14.0 per cent,” Mr. Babu said.
He also said the higher bank lending rates will push up both import costs and raise the prices of essential commodities further, adversely impacting the entire economy.
The FBCCI also proposed to bring down lending rate to a single digit, considering the situation in the neighboring countries particularly for bank loans or credits to productive sectors.
The apex trade body sees that the investment would not remain sustainable and profitable following the withdrawal of the ceiling on lending rate.
The central bank withdrew last month the lending rate cap in all sectors barring two — agriculture and industrial term loan — after nearly two years, following the increase in deposit rate that created a mismatch between the cost of funds and the interest rate ceiling set by the central bank of Bangladesh on lending operations by the banks
Earlier it asked the commercial banks on April 19, 2009 enforce the ceiling on lending rate in five specific areas at 13 per cent to help mitigate the impact of the then global economic meltdown.
The five areas for which a ceiling on lending rate was then fixed were: agriculture, term loan and working capital to large and medium-scale industries, housing and trade financing.
BBN/SSR/AD-03Apr11-8:25 am (BST)