The New Nation - Internet Edition

ACCORDING to reports, the weighted average rate of lending by banks in Bangladesh stand at 12.06 per cent. The spread of interest between lending and for deposits, thus, stand at some 5.38 per cent. This contrasts with the average spreads being 2 to 3 per cent worldwide, according to the same reports. Investors have been insisting on rationalising the spread. The banks say that they need to maintain the present spread positions to maintain their profitability while the entrepreneurs say that banks can ensure this profitability by streamlining their operations and pruning unnecessary administrative costs.

Besides, they point out, by lowering the lending rate and facilitating more businesses the total volume of the business of banks would rise adding to their profits substantially. At the same time, the wheels of the economy would be also running faster and better. The high lending rate in the backdrop of too many bottlenecks that entrepreneurs face in Bangladesh from electricity shortage to bureaucratic procedures, raise the costs of doing business. But business operators say that they can still maintain their competitiveness if only the lending rate is decreased meaningfully.

The Bangladesh Bank can help increase liquidity of the banks by lowering compulsory cash reserves. The banks thus could lend more and at lesser rates of interest. There are also other means which the Central Bank can employ to bring the lending rate down to make money available on easier terms. The central bank must do these things without worsening the inflation situation. The banks again may attempt to reduce the spread by only cutting interest rates against deposits but not by similarly reducing the lending rates. But this would be grossly unfair for the savers, specially the small savers and may even undermine saving efforts and should be taken care of.