Govt lenders to wait for private banks' response
Wednesday, 27 February 2008


Staff Correspondent

The government-owned commercial banks will take a decision about reducing the gap between lending and deposit rates after seeing how the private sector banks deal with the issue, said Suhel Ahmed, chairman of Janata Bank.

The interest rate spreads [gap between deposit and lending rates of individual banks] in state-owned lenders are still lower than that of private banks and they would wait to see what steps the PCBs take in this regard, he said.

Before coming up with a decision, policymakers of the three corporatised state-owned lenders—Sonali, Janata and Agrani banks— would sit together to see how the gaps could be narrowed further and to what extent, said Suhel, a retired commerce secretary.

At present, the spread is 5.88 per cent in 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 with bankers warned that the private banks could not do whatever they liked in the name of free market economy.

Bangladesh Bank governor Salehuddin Ahmed conveyed the message to both public and private sector banks that they would have to raise their efficiency levels to lower cost of fund and lending rates.

The bankers also agreed in principle to the need of narrowing the interest rate gaps, but any timeframe has not yet been given. 'Private sector banks are giving better services to clients than we do and if we charge higher interest rates, no customer will come to us,' Suhel Ahmed explained.

The government-owned banks also need to lower the spreads to stay competitive, he said. For the last one year, the banks are working and investing more on improvement of services, he informed.

Pressures have been mounting on the country's banking sector since chief adviser Fakhruddin Ahmed in a recent letter asked the central bank governor to find out a way to reduce the interest rate gaps to a level between 4 and 5 per cent.

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