Local banks prefer borrowing from foreign banks and lending agencies because of relatively low interest compared to the cost of locally mobilised funds, market insiders said.

Prime bank Limited (PBL), one of the country’s largest private commercial bank that provides conventional banking services, has already obtained $5 million from a bank in Qatar and another $3 million from a bank in UAE recently.

Talking to daily sun, PBL Managing Director Md Ehsan Khasru said a total of $90 million foreign fund remains in the pipeline, which his bank would receive by next January. “I went for foreign funds because of low rate of interest compared to locally mobilised funds,” Khasru said.

He said local banks including the Prime Bank have offered above 12 percent interest to the depositors for term deposit during the liquidity crunch triggered from the government’s high bank borrowing in the last financial year.

He said the rate of interest for lending by banks also went up due to the higher cost of funds.

He said the business community often protests banks’ lending rate and become reluctant to make fresh investment. “Without investment, a banking company cannot earn profit,” said the top banker.

He said his bank revised the interest rate for deposit and renegotiates the rate with depositors. “Despite the reduced interest rate, a deposit in my bank is still satisfactory. However, the cost of fund is still higher in case of local funds,” he said. The Eastern bank limited (EBL) has borrowed over $100 million in the current calendar year, an official of the bank said, seeking anonymity.

Bangladesh Bank (BB) sources said the state-owned Sonali Bank (SBL) had an arrangement of $60 million from a bank in the UK last fiscal, which was not executed by the bank authorities.

Source said the local banks have moved to mobilise foreign funds as the local funds become costlier resulting in a fall in overall banks’ investment in the last few months.

The central bank does not have any comprehensive report on the foreign loans obtained by the local banks. Some experts observed that the liquidity strength of banks will get stronger if more foreign funds enter the local banking industry.

The central bank has an embargo on banks to limit within the interest rate for borrowing from foreign lenders at maximum 6 percent.

“The 6 percent rate will need to be calculated including the LIBOR (London Inter-Bank Offered rate),” sources said.