Banks gain big on promises of cutting rates

Golam Mowla
Published : 07:30, Jun 13, 2018 | Updated : 07:30, Jun 13, 2018

Bank owners gain big promising reduction in ratesWith enjoying previous privileges, private banks are now to get three more incentives.
Finance Minister ANM Muhith proposed 2.5 percent reduction in banks’ corporate tax in the national budget for 2018-19 fiscal.
In face of pressure from Bangladesh Association of Bankers (BAB), the government has also moved to reduce the interest rate of saving certificates and disburse the ‘idle-money’ of the state-owned banks for the private banks.
In his budget proposal, Muhith kept the corporate tax rate unchanged, except for banks and financial institutions, for which he proposed a reduction of 2.5 percent from the existing 40 percent.
With this proposed rate, the highest corporate tax rate will be mostly 40 percent, and next highest rate will be 37.5 percent, except for tobacco manufacturers and non-listed mobile phone operators, which will be taxed at 45 percent.
Muhith’s proposal will make way for the banks’ owners, including that of the nine new ones that started in 2013 to pocket Tk 8 billion from their revenues, according to data from National Board of Revenue.
Admitting the positive impact of tax reduction, BAB Chairman Syed Mahbubur Rahman advocated for lowering borrowing rate first.
“Reducing tax in banks sector will somewhat affect in controlling rates but borrowing rate need to bring down first, otherwise lending rate will not decrees,” Rahman said.
Rahman, who is the Managing Director of Dhaka Bank, said, “Interest rate will also depend on expense per official and employee and risk premium of the banks.”
Analysts, however, did not think the government’s repeated moves for the private banks are on the right track.

Blaming banks’ owners for possibly pocketing the money, AB Mirza Azizul Islam said, “Apparently, customers won’t enjoy any privilege from corporate tax reduction for banks, rather the bank owners will take this money.”
“Customers may benefit if the corporate tax reduction is given only for the banks which could keep its lending rate below 9 percent,” said Islam, who was the former finance advisor to the caretaker government.
Former Bangladesh Bank Deputy Governor Khondkar Ibrahim Khaled thinks unlike other countries elsewhere in the world, bank customer’s interest in Bangladesh has not been protected.
“Laws have been changed under the presser from people, who hold only 10 percent stake in the banks’ deposit,” he said.
“Bank directors are getting whatever they are asking for. They have even taken more government deposit and reduced cash reserve ratio (CRR) too.”
CRR a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.
At the Jun 8 post-budget media call, Planning Minister AHM Mustafa Kamalsaid banks’ corporate tax has been reduced to bring down the lending rate to single-digit.
In its negotiation earlier this year to slash the lending rate, private banks managed the Bangladesh Bank to reduce the cash reserve ratio (CRR) by one percentage point to 5 percent, extend the deadline for adjusting ADR that measures loans as the percentage of deposits and lower the repo rate from 6.75 percent to 6 percent.
The repo interest rate determines the rate of interest a commercial bank has to pay on a loan from the Bangladesh Bank.
It had also made the government to keep 50 percent of its funds with them in an effort to address the liquidity crisis.
According to banks officials, lending rates would not come down to single-digit with banks collecting deposit on higher rates as they face liquidity crisis.
According to Bangladesh Bank data, all banks — state, private and foreign have hiked lending rates in March.
All of the 57 banks are now maintaining a double-digit rate with industrial loans charged as high as 22 percent.
The jumping lending rate has also caused the deposit rates to hike. In March, it stood at 5.3 percent from 5.18 percent the previous month leading the spread to increase to 4.52 percent from February’s 4.37 percent.