Clicky
National, Front Page

Single-digit lending rate to boost economy


Published : 25 Dec 2019 09:30 PM | Updated : 07 Sep 2020 10:42 PM

Introduction of a single-digit lending rate for industrial manufacturers will boost up the country’s economy, economists say.

 “It is very good news for us. It was a long cherished demand for the businessmen. It will be favourable and welcoming for running business. And it will develop the country’s industrial sector significantly. The process has just started.” Helal Ahmed Chowdhury, Supernumerary Professor of BIBM and Former Managing Director of Pubali Bank Limited told Bangladesh Post on Wednesday.

Besides, many people will be encouraged to invest in different development sectors as they will be feeling comfortable to take loan at a single digit interest, he added.

Apart from these, the young people would dream to be businessmen and will also be encouraged and come forward to invest in manufacturing sector, he mentioned.

Businessmen welcomed the central bank’s initiative, saying the measure will give a shot in the arm of the industrial sector, giving them respite from the burden of higher interest rates.

Kazi Sayedur Rahman, executive director and Board Secretary of Bangladesh Bank told Bangladesh Post that, “The single-digit lending rate in industry sector will help boost country's economic development by creating employments, ensuring sustainable economic growth and achieving developed country status.”

Besides, it will also help to maintain sustainable GDP growth, he added.

“The country’s readymade garments industry has faced many difficulties and many factories have shut down for incurring losses,” he said adding that, “The single-digit lending rate will help to restart many factories to manage funds at low cost.”

However, some economists termed the single-digit lending rate as a big challenge, saying the existing problems relating to bank loan interest will have to be resolved first, market analysts said.

They said being pressurised by the central bank, both public and private commercials banks and financial institutions have agreed with the proposal of introduction of a single-digit lending rate in order to expedite the country’s ongoing financial development.

Former World Bank lead economist Dr Zahid Hussain said, “Without solving previous problems of banks including Non-performing loans and preparing a strong ground work, it would very tough to get benefit by introducing a single-digit lending rate in manufacturing sector.”

He said, “It would have a negative impact on the banking sector as lenders will shy away from disbursing loans to the industrial sector due to the lower interest rate.”

Zahid said the banks may reduce credit disbursement to the industrial manufacturing sectors because of the lower interest rate that would affect their profitability.

The country’s other sectors will also seek similar interest rates on their loans for boosting their businesses, he said adding that, “It should not be for a single sector in the age of market economy.”

He emphasized to take some steps to manage irregularities in banking sector especially by reducing NPL and operating cost as well as ensure good governance to ensure more profit in this sector.

Zahid said, “The government should not give permission of more banks in the country as the banking sector has been facing huge competition among each other. Besides, the government’s borrowing should be reduced from banks to increase more funds to other productive sectors”

However, the Bangladesh Bank board of directors has approved a proposal on a single-digit lending rate for industrial manufacturers at a meeting of the board of directors on Tuesday.

BB spokesperson Md Serajul Islam said, "Our board has given a decision on 9.0 percent interest rate on industrial manufacturing loans as well as working capital after reviewing a committee report."  BB would issue a circular soon in line with the board decision, he said, expecting that the single-digit interest rate for industrial manufacturing sectors will come into effect from January 01, 2020.

The borrowers from such industrial manufacturing sectors will get loans at 9.0 percent interest rate instead of the existing level of around 12.00 percent after implementation of the BB board's decision.

However, in December 01, 2019, after a meeting with the chairmen and MDs of public and private sector banks, Finance Minister AHM Mustafa Kamal told the reporters that the single-digit interest rate on industrial lending would come into effect from January 01, 2020.

As part of the move, the seven-member committee, headed by BB Deputy Governor S M Moniruzzaman, was formed on the day to find out ways of bringing down the industrial lending rate to the single-digit level.

The committee recommended that the interest rates on large industrial (manufacturing) loans along with cottage, micro, small and medium industrial (manufacturing) credit will be lowered to the single-digit from the existing level. Besides, large industrial (manufacturing) loans will include credit provided to the ready-made garment (RMG), textile, ship-building and ship-breaking, agro-based industry and other similar sectors.