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Govt Allows Banks To Cut Deposit Rates PDF Print E-mail
Wednesday, 08 April 2009

The government gave the go-ahead on Wednesday to commercial banks, in line with their proposal, to cut interest rate on deposits to help deal with recession fallouts on Bangladesh's economy.

The bank executives at a meeting with the finance minister AMA Muhith said deposit rates needed to be cut to lower interest rates on lending.

"Following the approval of the finance minister, the private banks have decided to cut the deposit interest rate along with the cut in lending rates," Association of Bankers Bangladesh chairman Kazi Mahmud Sattar told

Asked about the rate to be cut in the deposit interests, Sattar said the central bank had asked them to keep the spread within 5 percent.

"We will fix the lending and deposit rates in line with that direction," he said.

Bangladesh Bank asked banks Tuesday to cut lending rates to a maximum 13 percent except for credit cards and consumer loans, and the banks agreed.

The highest interest rate for all except consumer loans and credit cards is currently 14.75 percent.

In that meeting the banks proposed the central bank for a cut in deposit rates, but it did not agree.

Muhith said, "Inflation has now come down a lot. There will not be much problem for the depositors if interest rate is slightly cut."

"How the lending rates will come down if the deposit rate is not cut," he asked.

Sattar said the central bank was to send a guideline and the decisions from Tuesday's meeting to all the commercial banks, based on which the banks would soon fix the deposit and lending rates.

Asked why the deposit rate cut was essential to cut the lending rate, he said, "Ninety-five percent of the money that we lend comes from depositors. For us, the deposits are like raw materials. If the price of the raw material comes down, so does the price of the product.

"So it is only natural that a cut in deposit rates will reduce the lending rates."

"It would have been very challenging for us to reduce the interest on bank loans to 13 percent. But we will try to carry out the directives of the central bank," he had said.

Three types of government bonds, now in place, have an interest rate of 11.5 to 12 percent. On the other hand, the private banks give 11 to 13 percent interest on their bond schemes.

During the last caretaker government, the central bank had put pressure on private banks to bring the spread below 5 percent without cutting the lending rates.


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