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Banks raising interest rate

Published : 20 Sep 2021 10:00 PM | Updated : 21 Sep 2021 01:45 PM

Commercial banks are increasing interest rates on loans after Bangladesh Bank fixed interest rates on term deposits. 

Interest rates, which have been reduced to 6 to 8 percent in various sectors including for cars, houses, and large industries, are now being increased, sources said.

But due to the central bank's directive, no bank will be able to charge more than 9 percent interest. Earlier, BB said interest rates on term deposits cannot be paid below inflation.

After getting such instruction from the central bank, banks started taking steps to increase interest rates on loans. 

"We're adjusting interest rates upward because there is no way to prevent losses without raising interest rates," said a private bank official.

Sources said most of the banks have accumulated huge amounts of surplus money as the demand for loans in various sectors including industry and services has come down a lot. 

Most of the banks were giving consumer loans at less than 9 percent interest as directed by the central bank. But before fixing the maximum interest rate limit of 9 percent last year, the interest rate in these cases was 12 to 16 percent. 

Now after raising interest rates on term deposits, most banks have started raising interest rates on consumer and other loans.

A banker said the increase in the cost of deposits would lead to an increase in interest rates on loans, which is normal. Banks have brought down interest on consumer credits to 6 percent, which is no longer possible. Again, the interest rate on loans to large industries was brought down to 6 and a half percent. 

He said all banks may not raise interest rates overnight. But they will gradually increase it. There is no way to increase the interest on the deposit without increasing the loan interests, he added.

Sources said some banks have brought down the interest rate on cars, houses, or individual loans to 6-8 percent. Most of these banks were lending to big industries at 6 to 7 percent interest. In all, the average interest rate on bank loans stood at 7.30 percent in July. 

In March last year, the average interest rate on all loans except on credit cards was set at 9 percent, while the average interest rate was 9.58 percent. Along with loans, interest rates on deposits fell to 4.11 percent in July, which was 5.51 percent in March last year. 

Bangladesh Bank has not yet released the average interest rate data for the banking sector in August. However, most banks have raised interest rates on deposits to 5.60 percent or more.

A  private bank official said customers who may need money at any time now have a tendency to keep three-month deposits instead of keeping money in his/her accounts. In general, low-interest deposits in banks are declining. In this situation, if the interest on the loan is not increased, there will be a loss, the official said.

A concerned official of the Bangladesh Bank said that the banks were reluctant to take individual deposits in many cases due to declining demand for loans. 

To discourage individual deposits, some banks have reduced their interest on three- to six-month term deposits by 2 to 3 percent.

However, the country's average annual inflation is close to 6 percent. Considering inflation and calculating various service charges, if a person kept money in a bank, his actual income would be much less. That is why a directive was issued on August 8 asking banks not to pay less than the inflation rate on deposits of three months or more. 

In the meantime, most banks have introduced new interest rates on deposits.

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