The central Bank of Bangladesh. BBN file photo

Dhaka, Bangladesh (BBN) – Bangladesh Bank (BB), the country’s central bank, has asked the banks to bring down the interest rate on lending to single digit from the existing level as soon as possible.

The advice was made at two separate meetings of senior bankers held at the central bank headquarters in the capital Dhaka on Monday with BB Governor Fazle Kabir in the chair.

The BB’s latest move came three days after the prime minister’s advice to the banks to bring down the lending rates to single digit to boost investments in the country.

“Interest rates have to be slashed and this should be in single digit. Or else, the investment will not accelerate along with the employment generation,” Prime Minister Sheikh Hasina reportedly said while receiving donations for her Relief and Welfare Fund from the Bangladesh Association of Banks (BAB) at her official residence Ganobhaban in the capital on Friday.

At the meeting with Association of Bankers, Bangladesh (ABB) leaders, the BB’s high-ups advised them to start bringing down the interest rates on lending to single digit from the existing level as soon as possible.

The ABB leaders sought two-to-three months for bringing down the interest rates on lending to single digit, saying that they are trying to start implementation of interest rates on lending but they face some challenges including the high-cost fund, received from different sources in recent months to meet their growing demand for liquidity.

A three-member ABB delegation, led by its chairman Syed Mahbubur Rahman, also urged the central bank that they need the time to reduce the high-cost of funds, the meeting sources told the BBN.

At the meeting, the ABB leaders also raised the issue relating to higher interest rates on term deposits, provided by different state-owned enterprises (SoEs).

Some SoEs are now providing term deposits to the PCBs charging interest rate ranging between 10.50 per cent and 11.00 per cent, the ABB leaders mentioned at the meeting.

The ABB leaders also sought intervention from the BB to ensure receiving 50 per cent fund from the SoEs with lower interest rates as per the latest decision of the government.

On March 30 last, the government decided to allow the state entities to deposit 50 per cent of their funds with the PCBs, up from the existing ceiling of 25 per cent, to tackle the ongoing liquidity crunch in the banking system.

Earlier on the same day, The central bank high-ups along with Senior Secretary of the Financial Institutions Division of the Ministry of Finance Md Eunusur Rahman met managing directors (MDs) and chief executive officers (CEOs) of six state-owned commercial banks (SoCBs) to discuss the issue of latest interest rate on the market.

The MDs and CEOs of the public banks have been advised to lend their funds at lower interest rates as they hold excess liquidity, according to the sources.

The meeting also discussed interest rates, charged by the SoCBs, on term deposits to other banks, they added.

Currently, the state banks are providing term deposits to other banks particularly PCBs at interest rates between 9.50 per cent and 10.50 per cent, according to the private bankers.

The private bankers also said the PCBs will not be able to bring down the lending rate at single digit until the deposit will be come down to at a reasonable level.

On the other hand, the SoCBs informed the meeting that some PCBs lend the funds borrowed from the public banks to other PCBs and non-banking financial institutions at higher interest rates.