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Wednesday, April 8, 2009

Rate cut not enough, say businessmen

Terming the central bank's decision on bringing down the lending rate of commercial banks to 13 percent as insufficient amid recession, business leaders yesterday reiterated their demand for a single-digit rate.

Businesspeople however hailed the loan-rescheduling move, saying it will help increase cash flow in the industrial and manufacturing sectors.

Against the backdrop of the stretching global financial crisis, the Bangladesh Bank (BB) yesterday decided to cut the lending rate of all types of loans except credit card and consumer loans, and give loan-rescheduling facility without down payment to six sectors -- garment, frozen food, leather, jute, textile and tea.

Presently, the lending rate in the productive sector is 14.75 percent and in case of other loans it is as high as 18 percent.

The existing lower rates (7-11 percent) for agricultural and export loans will remain unchanged, a BB meeting with commercial banks was told.

BB Governor Salehuddin Ahmed told journalists that the central bank has postponed for six months the provision for taking a minimum of 10 percent down payment.

Business leaders were urging the government to reduce the bank interest rate to a single-digit to make the external business more competitive.

In response to their plea, the government formed a 27-member committee headed by Finance Minister AMA Muhith to observe the recession impacts. The first meeting of the committee held on March 24 concluded without any decision.

The BB governor also said they will formulate a policy soon identifying some specific sectors for this opportunity. The bankers will provide the rescheduling opportunity on a case-to-case basis depending on the banker-customer relations.

Those who are or will be affected by the global recession will be eligible for the opportunity, not those who were defaulters from earlier.

Presently 10 to 50 percent down payment of the total loan is required for various types of loan rescheduling.

The BB decided to cut the lending rate to help investment and employment increase amid financial meltdown, a BB high official said.

The BB governor said the lending rate cut is for an interim period and later it may be reviewed.

President of the Association of Banks Bangladesh Mahmood Sattar told reporters after the meeting: "Due to the provision of loan rescheduling without down payment it will take more time to get back the money we used to get earlier."

Sattar also said lowering the lending rate to 13 percent is a big challenge for them. As the lending rate has been cut, the deposit rate also should be brought down, he suggested.

According to BB statistics, presently among Tk 1,91,079 crore loans the amount of miscellaneous loan is Tk 20,733 crore. The rest are for agriculture, industry, trade and others.

Of the Tk 20,733 crore miscellaneous loan, credit card loan is Tk 808 crore and consumer loan Tk 5,539 crore.

In reaction to the lending rate cut, Abdus Salam Murshedy, president of Bangladesh Garment Manufacturers and Exporters Association, said a rate at 13 percent is not enough.

"We want the rate at a single-digit or the highest at 10 percent as 13 percent is too high to be competitive," Murshedy said.

He however said the move is positive as the central bank has given the opportunity of loan rescheduling.

"As a result, cash flow in the industrial and manufacturing sectors will increase manifold."

Fazlul Hoque, president of Bangladesh Knitwear Manufacturers and Exporters Association, vented frustration, saying the rate cut is too scanty.

Annisul Huq, president of the Federation of Bangladesh Chambers of Commerce and Industry, said the central bank should have brought the rate to a single-digit. Huq however hailed the move of loan rescheduling.

The Daily Star



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