No government deposit for banks with double-digit lending rates

The government has decided to stop depositing money in the banks that have not delivered on the promise to bring down interest on loans to single-digit rates.

The Bangladesh Bank informed the chief executives of the banks about the government’s stand on interest rates in a circular on Thursday.

It asked the banks to strictly follow another circular issued by the Financial Institutions Divisions on May 20 on deposits of own funds of government, semi-government, autonomous and semi-autonomous organisations and Annual Development Programme allocations in banks.

The banks will enjoy a facility to keep the rates of interest on these deposits to maximum 6 percent, according to the government circular.

But those banks that have failed to keep their promise made nine months ago - to bring down rates of interest on loans to sing-digit ones - will not enjoy the facility as they will not receive the deposits, it added.

Bank owners pledged to cut the lending rates in a meeting with Prime Minister Sheikh Hasina on May 14 last year.

On Mar 31 this year, Hasina expressed ire at a programme over the rates still being at or above 10 percent even after fulfilling a condition to deposit 50 percent government funds in private banks.

The banks in Bangladesh are currently offering loans with nine to 20.5 percent interests, according to the central bank.