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BB sets single-digit lending rate for industrial manufacturers

Implementation to be difficult, says Salehuddin


| Updated: December 25, 2019 16:35:43


The front view of Bangladesh Bank seen in this undated FE photo The front view of Bangladesh Bank seen in this undated FE photo

The Bangladesh Bank (BB) board of directors has approved a proposal on a single-digit lending rate for industrial manufacturers to add an impetus to the country's economic growth.

The approval came at a meeting of the board of directors held at the central bank headquarters in Dhaka on Tuesday, with BB Governor Fazle Kabir in the chair.

"Our board has given a decision on 9.0 per cent interest rate on industrial manufacturing loans as well as working capital after reviewing a committee report," BB spokesperson Md. Serajul Islam told the FE after the meeting.

Mr. Islam, also executive director of the central bank, said the BB would issue a circular soon in line with the board decision.

"We expect that the single-digit interest rate for industrial manufacturing sectors will come into effect from January 01, 2020," he added.

When contacted, another senior official of the BB said the term loans of industrial manufacturing sectors would be eligible for the 9.0 per cent interest rate.

On the other hand, former BB governor Dr Salehuddin Ahmed opposed the modality for slashing the interest rate on a specific sector saying that it would be difficult to implement it properly.

"Other sectors will also seek similar interest rates on their loans for boosting their businesses," Dr. Ahmed told the FE while replying to a query.

The banks may squeeze their exposure to the industrial manufacturing sectors because of the lower interest rate that would affect their profitability, according to the former governor.

"It should not be for a single sector in the age of market economy," he explained.

Earlier on December 12, the BB-formed committee submitted its report to the governor with a recommendation that only industrial manufacturing sectors be offered the single-digit lending rate.

The seven-member committee, headed by BB Deputy Governor S M Moniruzzaman, was formed on December 01 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 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.

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

"Trading and service sectors will not be entitled to the low interest rate on loans," a committee member told the FE earlier.

He also said the committee recommended bringing down the interest rate on such loans to a single-digit, which will contribute directly to achieving higher economic growth.

After a meeting with the chairmen and MDs of public and private sector banks on December 01, 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.

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