Who will Bell the Cat: Regarding interest rate reduction

--Md. Golam Kibria FCA

It is pertinent to mention here that no Economic Development of a country in the Globe has happened without having any affordable interest rate charging for loans & advances. Yes, some others factors like Geographic Consideration, Population Size, Human Behavior, Natural Resources of the Country, logistics and infrastructure facilities, climates of the region and finally, political situation of the country largely causes of Socio Economic Development of any Country. If the others factors are favorable or more or invisible, my question is how a businessman can run even if the charging rate of his borrowed fund or capital is too high orĀ  continue in alarming level.

Now question may be raised why banks or financial institutions are charging so high rate of interest? If we vertically analyze the causes of high interest rate that may depict the underlying matters/things which usually affect the key metrics of banks profitability and overall performance as well. Say, some of these banks are charging interest for any particular products line item @14%. Before selling/charging such rate, Management of the bank has to consider the following things:

How much spread bank can maintain to accommodate projected/ budgeted/demanded/ anticipated dividend can be paid in current year as well as in upcoming years’.

So to maintain/pay such high post tax dividend bank has also to be considered numerous levels of things that may describe as;

How much rate of interest has to forgo for his depositors

How much CRR & SLR requires to be maintained. If it is a Primary Dealer (PD) bank then how Cash or Cash Equivalents [in fact that cash equivalents has already ceased its criteria for non availability of secondary market in regards to treasury bills & bonds because it could not be readily convertible to cash with a arms length transaction as per International as well as Bangladesh Reporting Standards or Accounting Standers] to be maintained. How much provision is/will require to be kept for bad loans and capital market investment.

Dividend Issue

If we gone through the dividend issue, may I humbly ask you (promoters & shareholders of the bank) a question- Why you are demanding or pressing so high level of dividend in a constant way?. Can you please give me an example of such level of dividend anybody is receiving in any developing or developed economy? Whatever economic meltdown or political or natural disaster happened in Bangladesh had you been forged/sacrificed any portion of dividend except few non-traditional banks. May I place question to the regulators and finally other Stakeholders of the nation why you are demanding such top class dividend.

Paying Higher Rate for Deposits Monies

This is a big issue for every citizen of the nation and the question of belling the cat largely depends on this issue. We are demanding lower rate of interest for trade & commerce and loans & advances, but bank has to pay higher level of interest to the depositors even our Govt. tools are giving higher yield to the investors and PD Banks have to invest some of the papers only which could not be recycled to its cash cycle. Furthermore our central bank recently promulgamated a new rule to maintain 0.5% extra CRR requirements for every commercial banks.

Classified Culture

Whatever history of our banking industry could we been able to stop our default culture?. We have very good millions/trillions of laws, rules, regulations and guidelines. Moreover we sometime looked very cautious about such bad culture. But what are the end results. Had we been able to stop the default culture/dozy culture? Only the Bank’s Board of Directors or Operating Management is responsible for the misfortune. Could we been able to stop our smart people to take/looting the money from banks?

So, the question of integrated solution is very much needed to vandalize the Vicious Circle. If we are not able to organize and set together involving all stakeholders like representatives of bank owners, operating management, depositors, borrowers, auditors, evaluators, print & electronic media, shareholders, and regulators with clear vision to solve the crisis, it never will materialize. We are very much hopeful if all stakeholders can set together with a common phoneme then we can way out Inn-Saa-Allah that will be resulted smooth progression path for the nation.