Time to lift lending interest cap

The 9 per cent regulatory cap on interest rates should be lifted in a bid to achieve the credit growth target of the Bangladesh Bank, said a number of officials of several banks. 

Their comments came at an event styled "An interactive Macro Economic discussion on Global Markets, South Asia and Bangladesh" at the Lakeshore Hotel on Wednesday. City Bank Capital, an investment bank, organised the programme.

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"Our bond market is bank-driven. Insurance, pension and provident funds should come to the market," said Ershad Hossain, managing director of City Bank Capital.

He said banks were now more interested in investing in bonds rather than lending to the manufacturing sector since the bond market yield is better.

There is a regulatory ceiling of 9 per cent on banks' lending, whereas the bond yield ranges from 6 per cent to 8 per cent or even above.

"Moreover, lending carries default risks and lenders are obliged to keep provisions against a loan. So, they will disburse fewer loans and invest more in bonds," said Hossain.

"The time has come to lift the lending interest cap."

A number of bankers echoed Hossain on the issue.

Parul Das, chief financial officer of One Bank, said listing is the only way for investors to make an exit from perpetual bonds.

"So, the listing process should be easy and the cost should be lower."

At present, issuers have to spend Tk 1 crore or more to list a perpetual bond.

"As a result, issuers don't feel encouraged to list them," said Das.