Staff Correspondent

The Bangladesh Bank, bank owners and management have admitted that the interest rates should be lowered, said Kazi Mahmud Sattar, managing director of City Bank and chairman of the Association of Bankers, Bangladesh, on Wednesday.

The three parties will sit together and determine by how much the interest rates can be reduced, he said after a meeting with Salehuddin Ahmed, the central bank's governor.

'We admit that there should be an effort to cut down lending rates but for that we need to control some cost factors,' said Sattar. Reduction in lending rates will benefit the business sector and the people, he added.

If the tax on general provision is lowered to one per cent from two, the banks can reduce costs, and if other costs are cut down, the banks can reduce lending rates, he explained.

'The ABB's members and the central bank had a long discussion on how to cut down administrative costs including decoration cost,' said City Bank's managing director. The governor gave us a single message — the banks must reduce their lending rates, he told reporters.

'The banks have asked for certain waivers including tax benefits,' he added. The bankers and owners will sit together and analyse the impact of the reduction of lending rates on the banks' balance sheets, he said. 'We will come up with proposals after that.'

The governor said the Bangladesh Bank has instructed the bankers to sit with the owners and come up with proposals by February 28. He also instructed the banks' chief executive officers to give working capital to the poultry sector and, if necessary, reschedule poultry farms' loans.

The central bank expressed its annoyance over the expired export bills and asked the banks to collect them as soon as possible, said the governor. Bangladesh Bank and bank owners on Monday agreed in principle to make the gap between lending and deposit rates and bank charges reasonable.

The government has decided to persuade commercial banks, both in the public and private sectors, to reduce the spreads against the backdrop of the dissatisfaction of business sector and the government on the issue. Presently, the spread is 5.88 per cent in the state-owned banks, 6.17 per cent in private commercial banks and the highest — 8.91 per cent — in foreign commercial banks.

The finance adviser at a meeting warned the banks that they cannot do whatever they like in the name of the free market economy. The chief adviser also showed his displeasure over the high spread and instructed the Bangladesh Bank to find a way to reduce the gap to 4-5 per cent.

The central bank identified 27 banks which have spread of over 5 per cent and discussed the issue with the managements of the banks. The central bank formed a four-member committee to analyse the spread issue. The committee recently proposed a uniform formula to calculate spread. It proposed that the average lending rate should be calculated by dividing the total interest by total lending.

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