Jebun Nesa Alo
The country’s commercial banks have begun reducing their lending rates thanks to excess liquidity in the money market and a central bank move to rationalise the interest rate spread (the difference between the average lending and deposit rates).
Some banks have already reduced their rates on loans and advances this month although this has not yet been announced officially, bankers said. Their announcements will be made in December while other banks are now at the planning stage.
The banks are reducing the lending rate to help increase the banks’ loans and advances while bringing the spread down to within the desired level, they said.
Having a huge amount of idle money accumulated due to poor demand for loans, the commercial banks earlier went for a heavy cut on the deposit rates, pushing up the spread above the desired level of 5%.
This prompted Bangladesh Bank to ask the commercial banks to cut the lending rate, said a senior executive of the central bank who recently expressed concern over banks crossing the threshold, especially Brac Bank and a number of foreign banks.
“The spread increased mainly due to lower deposit rates that came down due to a slump in banks’ business. The lending rates remained unchanged, on the other hand,” said Association of Bankers Bangladesh (ABB) President Nurul Amin.
He said the spread climbed since the beginning of this year. Barring a few exceptions, the average spread is not so alarming, he added. Bangladesh Bank data shows that the average spread was 4.91% in April, 2011 and that this has increased gradually to stand at 5.23% in July.
“Banks are going to cut lending rates individually from this month and might give announcements in December,’’ said the bankers’ president.
The average annual lending rate of the private banks stood at 14.36% and the deposit rate at 9.13% as of July down from the prvious month's rates of 14.44% and 9.1% respectively.
The spread of 26 banks remained above 5% as of July as per the latest Bangladesh Bank data. The spread of foreign banks averaged at 8.64% and among the private commercial banks, Brac bank’s spread was highest at 9.26%.
“The average spread crossed 5% despite the central bank’s directive to bring down the gap to the level below 5%,” Bangladesh Bank Deputy Governor SK Sur Chowdhury said.
To do so, the central bank asked the banks to cut down the lending rate. It already warned 26 banks about crossing the limit.
The interbank call money rate remained stable at a range of between 7% and 7.5%, showing signs of adequate liquidity in the money market.
The call money rate came down to its lowest at 7% in last couple of weeks, and went as high as 8% in the last year. It, however, rose to 9% for just over one week ahead of Eid-ul Fitre.
“Banks should cut the lending rate now as the deposit rate has already been reduced. The lending rates of some banks, however, decreased slightly,” said Bangladesh Bank Chief Economist Hasan Zaman.
“The spread widened because of increasing non-performing loans (NPLs),” said Pubali Bank Managing Director Helal Ahmed Chowdhury. “It would come under control as the banks already started cutting down the lending rate from this month and signs are there that the political turmoil will ease.”
The ratio of NPLs to the total loans for the banking sector, in both gross and net terms, increased at the end of third quarter of FY13 compared to the second quarter, as per BB data.
Gross NPLs went up from 10% at the end of second quarter to 11.9% at the end of the third quarter. The overall banking industry NPL was 2.6% higher at the end of the third quarter of FY13 than the last five years' average of 9.3%.
Bangladesh Bank (BB) will continue its support to fostering mobile phone banking as part of its drive to attain inclusive growth towards poverty alleviation.
“BB will continue attaching high priority for fostering mobile phone based banking as a powerful tool for easing hardship of livelihoods of poorer population segments,” BB Governor Dr Atiur Rahman told a seminar held Thursday in Kuala Lumpur, Malaysia.
The governor was speaking at a session on “Banking Clients through Mobile Money” at AFI Global Policy Forum (GPF) 2013.
The Alliance for Financial Inclusion (AFI), in cooperation with the Bank Negara Malaysia (BNM), is holding the three-day forum, began on September 10.
The Forum has become the world’s most important Forum on financial inclusion, and has consistently grown along with AFI, which now represents more than 100 institutions from 87 countries.
Addressing the session, Atiur said Bangladesh has the potential of expanding mobile banking faster with over 100 million among 152 million people using mobile phones.
“Fast penetration of mobile telephony everywhere in Bangladesh attracted attention early on for its high promise as a cost effective new financial inclusion instrument,” he said.
Apart from this, the governor said Mobile Network Companies (MNCs) in Bangladesh were keen on launching their own mobile phone based financial services. But on prudential stability considerations BB opted for promoting this service in a bank led mode with the MNCs in partnering role on fee income basis.
He said the number of mobile phone banking client accounts has nearly doubled over the past two years and reached 7.21 million in last March. The numbers of area agents have risen to 108 thousands, transaction volumes have gone up correspondingly.
Even then, the governor said Bangladesh still has vast potential for further expansion of mobile banking with new services.
Currently, he said, mobile phone banking transactions in Bangladesh comprise mainly money transfers including utility bill payments and salary disbursements.
Besides, he said, mobile phone banking is now setting up to extend other services like deposit taking, loan disbursement and loan recovery.
“Trial phases for introduction of these services are likely to be straightforward and brief after the much more complex initial phase of setting up secure glitch free software and connectivity, we expect these new transactions to take off rapidly before long,” he said.
Mobile banking (m-banking) in the country is gaining momentum by raising its contributions to channelising cash from urban to rural areas and thus enabling low-income people send money to their near and dear ones.
M-banking is a collaborative service of banks and telecom operators that has brought relief to the lives of people as they can collect funds at their homes from the earning members of their families staying apart at work places to meet monthly expenditures.
Fourteen out of total 23 banks those have secured licenses from Bangladesh Bank (BB) introduced m-banking. Of these, m-banking styled bKash of Brac Bank Ltd and money transfer services through mobile of Dutch Bangla Bank Ltd (No specific names of the service like one of Brac bank) are enjoying monopoly in the market.
As of December 31, numbers of clients of bKash reached around 237,423 while that of DBBL 172,000. According to data available from the two major m-banking service providers, per day per client transaction accounted Tk 553 in bKash while that of DBBL was Tk 487.
The number of DBBL agents is around 3,181 and cumulative transaction last year was $ 11 million, while the number of bKash agent is 5,383 and cumulative transaction is $14.8 million.
Islami Bank Bangladesh Ltd (IBBL), the largest private sector bank having over 7 million clients, has launched its m-banking service styled mCash last month with the commitment of providing fastest and hassle-free money transfer at the door step of the recipients across the country from and to city and urban areas simultaneously.
As a regulator, Bangladesh Bank authority is trying to promote m-banking service as part of its mission towards achieving inclusive economic growth, which covers people of all sections, clusters and casts irrespectively.
Commenting on the issue, Deputy Governor Abul Quashem said BB wants to establish bank-led m-banking in the country so that the central bank could check terrorist financing and other money laundering concerns properly.
He said there is telco-led mobile banking in many countries, which is not appropriate in Bangladesh.
“The BB wants banks which introduce m-banking will have to have respective guidelines for proper operation of the service; and we are working on it,” he said.
He said banks were directed to follow properly the BB guideline with regard to KYC (Know Your Client/Customer) in case of, agents, money sender and recipients. “Ensuring security of individuals (senders), institutions and the state in delivering money transfer service is very vital and banks were instructed in this regard,” he said.
IBBL’s executive body chairman Eng Eskandor Ali Khan said Islami Bank has developed own software to operate money transfer service through the mCash.
News: The Daily Sun/Bangladesh/8th-jan-13
Bangladesh Bank has directed all the banks to better their SME service by taking steps such as skill development of the officials and displaying the SME credit policy at every branch across the country.
In a letter Thursday, the central bank’s SME and Special Programmes Department issued the directive to the banks’ managements.
The directive came after a Bangladesh Bank investigation found that the small and middle entrepreneurs were getting confused about SME credit policy as they were not receiving proper service from the banks’ officials concerned. Such situation was the result of lack of inefficiency among the officials in handling SME loans disbursement, the investigation observed.
In some banks, personal or consumer loan accounts were being logged with those of SME loans, leading the SME people to get confused, the central bank’s letter said.
Bangladesh Bank’s SME department said appropriate training, supervision and monitoring by respective banks’ managements could improve SME loan service.
It, however, said: “SMEs are getting momentum due to relentless endeavors of the central bank and the banks.”
The central bank department, in a separate letter to the branches of different banks, said that the banks could use several refinancing funds of Bangladesh Bank, JICA and ADB to promote SMEs.
News: The Daily Sun/Bangladesh/21th-Dec-12
Government’s finance division said it would not issue special bonds for implementing new power projects as banks face difficulties when bonds remain unsold.
Earlier, Power Division requested Finance Division for special bonds to finance newly proposed power plants, especially the coal-fired 1320 megawatt plant at Rampal in Bagerhat district.
In a letter to power division secretary on 13th of this month, Finance Division’s assistant secretary Abu Dayan Mohammed Ahsanullah conveyed their decision on issuing special bonds to fund power projects.
Meanwhile, the treasury bills and treasury bonds issued by government bond bazaar primary dealers through an auction failed to attract the clients.
As a result, Bangladesh Bank, banks and the government agencies concerned were forced to devolve the unsold bonds and bills on themselves, finance division letter said. It further said the government bills and bonds on the secondary market were not transacted to the expected level.
Besides, given the current financial strength and cash flow position in the country, finance division said the bonds without government guarantee have the lowest possibility of being sold.
In addition, interest rates of the new bonds will be very high, reads the finance division letter.
“So it’s not time befitting to issue new bonds in the market for implementing the new power projects,” the finance division directive said.
Power Division sought $302 million as equity for the newly-formed India-Bangladesh Friendship Power Company that will be responsible to set up the 1320MW coal-fired plant in Rampal, said a senior official.
He also said Bangladesh Power Development Board (BPDB) is likely to sign a power purchase agreement (PPA) with the Indian National Thermal Power Company (NTPC) on January 2 next year to implement the plant.
News: The Daily Sun/Bangladesh/21th-Dec-12