The country’s scheduled banks are offering single digit interest rate for all products, except consumer loans and credit card, to their clients as per the decision of a recent meeting between Finance Minister AMA Muhith and the bank authorities.

“As per the decision, each bank is bringing down their interest rates to single digit. Banks are implementing this decision,” Secretary General of the Association of Bankers Bangladesh (ABB) M Arfan Ali told media today.

Recently, Finance Minister AMA Muhith told the journalists that the interest rate in the banking sector will come down to single digit from August 9 since the chairmen and the managing directors of the banks agreed to implement the new rate as per the directive of Prime Minister Sheikh Hasina.

He said the interest rate for consumer loan and credit card will be flexible as per the banks’ obligations.

M Arfan Ali, also managing director of the Bank Asia Limited, said his bank is working on lowering the lending rate. “The new rate is likely to decrease our bank’s income, but we can adjust it by reducing other expenses,” he added.

He said the single digit interest rate against bank lending will increase the private sector investment that will help take the country’s economic growth to a sustainable level.

Talking to this correspondent , chairman of Mercantile Bank Limited (MBL) AKM Shaheed Reza said the MBL board of directors took the initiatives from July this year when Bangladesh Association of Banks (BAB) took the decision of the single digit interest rate.

“MBL is disbursing the industrial and corporate loans in single digit from July. For single digit interest rate, our income has decreased but we adjust the income by reducing other expenses,” he added.

He said the single digit interest rate will boost further the country’s economy, which will help achieve the country’s development goals, including ‘Vision-2021’ and ‘Vision-2041’.

NCC Bank Chairman M Nurun Newaz said the board of directors of the bank has already instructed the senior officials to lower the interest rate as per the decision.

“Banking sector should bring down the interest rate to a single digit to expedite the country’s economy,” he added.

Bangladesh Bank Chief Spokesperson M Serajul Islam said this is the own decision of the chairmen and managing directors of banks. BB is only providing its ethical pressure on banks to bring down the lending rate to single digit as per their commitment, he added.

Earlier, BAB, an association of private commercial banks, at a meeting decided to bring down the lending rate to a single digit and deposit rate for the three months tenure to 6 percent from July 1, the first day of fiscal 2018-19.

But, all banks could not implement the decision properly. On the other hand, the government has given incentives, including 5.5 percent CRR, to mitigate their liquidity crisis and bring the interest rate to single digit.

The government has also taken a decision to allow the state agencies to deposit 50 percent of their funds instead of 25 percent in private banks.
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Basel-III requirements for capital adequacy

Commercial banks are likely to be allowed to include their investments in corporate bonds as high-quality liquid asset under liquidity-coverage ratio (LCR) of Basel-III framework.

Bangladesh Bank (BB) made such observations Tuesday at a coordination meeting of major watchdog bodies, namely the Bangladesh Securities and Exchange Commission (BSEC), the Office of the Registrar of Joint Stock Companies and Firms, the Insurance Development and Regulatory Authority (IDRA), the Micro-credit Regulatory Authority (MRA), the Department of Cooperatives (DoC) and Bangladesh Telecommunication Regulatory Commission (BTRC).

At the meeting, held at the BB headquarters, the BSEC requested the central bank to allow the banks to comply with the BB's statutory liquidity ratio (SLR) requirement with their investment in the corporate bonds, as a way of stimulating the capital market.

The central bank failed to agree with the proposal, placed at the meeting, presided over by BB Governor Fazle Kabir.

To justify the refusal, according to officials, the central bank said only the approved securities are eligible for meeting the SLR obligation to the BB.

The approved securities are usually treasury bills (T-bills), bonds and other securities whose principal and interest are guaranteed by the government and also include BB'a own securities

Rather, the BB expressed its willingness to consider such bonds as high- quality liquid asset but their eligibility will be positively examined by the departments concerned of the central bank, they added.

 "We may allow the corporate bonds as high-quality liquid asset under LCR of Basel-III framework after examining its different aspects," SK Sur Chowdhury, deputy governor of the BB, told the FE after the meeting.

A move is underway to recognise movable property, too, as collateral against credits.

Bankers believe that such a change in traditional mortgage system will help expand lending and spur economic activities.  

Bangladesh Bank (BB) has already prepared a draft law titled 'The Secure Transaction Act' providing for such non-traditional mortgage system, officials said.

They said BB is expected to finalise the draft within this month. Thereafter, it will be sent to the Ministry of Law, Justice and Parliamentary Affairs for placing before Parliament for approval.

Movable property like goods, a document of title, security, instrument, money or any other intangible asset like goodwill will be regarded as collateral after enactment of the law in the making.

These are not accepted now in the financial sector as security for loans. Currently, only the immovable like house or flats, land property are accepted by banks and financial institutions as collateral.

People familiar with the latest move at the central bank told the FE that this would promote economic activities in the country, and reduce the dependence of lending institutions on immovables as security for credit facilities.

This innovation is being financed by Japanese aid-agency JICA under a project named 'secured lending and movable collateral reform in Bangladesh'.

A senior person familiar with the developments at the central bank told the FE that they were expecting to finalise the draft by August 30.  

A senior official at the Ministry of Finance (MoF) said this initiative is intended to help small and medium entrepreneurs and those engaged in self-employment who are unable to furnish immovable property as security against credits.

"SMEs, even startups, may be benefited as their access to the formal credits will rise," said a senior official at the MoF.

However, a high-powered monitoring team will meet on the matter at the MoF on August 29.

Bankers view that this is a piece of good news for them as it will help expand the volume of credits as the banking system now rolls in "excess liquidity".

They also hope this will bring dynamism in the business sectors as well the economy as many will have access to loans based on such property which the banking system has so far ignored as collateral.  Managing Director & CEO of Mutual Trust Bank Ltd (MTB) Anis A. Khan said: "We welcome this type of initiative as it brings dynamism in the economy."

He also sees nothing wrong in it. Many will get loans for further investment in business and it will help widen the base of collateral.

"The higher security, the higher loans," he told The Financial Express.

Mr Khan, also chairman of the Association of Bankers, Bangladesh Limited (ABB), said many will be even able to get loans against their motorised vehicles.

"It will have spillover impact on the economy. The insurance sector will also get some sort of business."

Another banker, Md Nurul Amin, managing director and CEO at Meghna Bank, said they had long felt the necessity of such arrangements.

"Such type of collateral exists in many countries, even in Sri Lanka," he said as an example to justify this initiative towards diversifying collateral.

Mr Amin, however, sees some risks of such type of security, such as the owners of such property may sell those to other parties and thus cause a problem to the lending banks.

"Suppose, a person gave his vehicles as collateral to a bank and he could sell it to other people, and in such cases bank may face problems."

Similarly, he added, the owners of factories may sell their machinery out to others.

However, there will be a separate entity paving the way for people to borrow by using such moveable property as security under the act.

The institution will help lenders get a risk-free picture of the security to accept movable property as collateral for advances.

The oversights body will be established under the name 'Secured Transaction Registration Authority'.

The main objective of the authority will be to promote the interests of the national economy by facilitating secure transaction against movable property in compliance with the provisions of the act.

The governor of Bangladesh Bank will be chairman of its board or a person nominated by him as his representative will work in the entity.

Under the law, the MoF secretary or a person to be nominated by him will stand as second in authority at the Authority. A registrar will also need to be appointed, according to the draft act.

The draft also states a designated person from Bangladesh Securities and Exchange Commission will also be on the board.

The main function of the board is to ensure registration of security rights of movable property.

Staff at the Bank of England began a three-day strike Tuesday, the first at Britain's central bank in more than 50 years, as part of a dispute over pay. Employees from the maintenance, security and frontline hospitality departments walked out over what the Unite union said was a "derisory", below-inflation pay offer for the second year running.

Union official Peter Kavanagh urged the governor of the bank to personally intervene in the dispute, threatening to escalate the industrial action if there was no breakthrough.

"Mark Carney should come to the picket lines outside this iconic British bank today and explain why hardworking men and women deserve to face years of pay cuts," Kavanagh said.