DOES IT INTEREST YOU?
WHAT?
The government has decided to implement the mick-talked-about single digit interest rate for
all types of deposits at 6% from Ap-11 1st & for borrowing at 9% from March 1st.
WHO?
THE BORROWERS
They have always felt under pressure
because of the high interest rates. They
either couldn’t invest enough or their
investments didn’t bear much fruit, which
inevitably resulted in some being loan
defaulters. With the new policy they must
now be jumping with joy.
THE SAVERS
They feel betrayed as their savings will now
bring in smaller returns. The decision to
reduce the interest on deposits will not just
affect pensioners but also the fixed income
group, who usually keep a pension of their
income everyday month in deposit pension
schemes (DPS).
THE BANKS
The forced reduction will greatly reduce
their income. Given 6% inflation & service
charges of the banks 9% interest from loans
will hardly leave much margins for the
banks profit from.
THE GOVERNMENT
The decision was taken to facilitate single
digit interest rate for landing with a view of
spurring private investment & create
employment. but the policy seems
somewhat tilted too much towards the
interest of business community at the cost of
others.
 WHY?

Though Bangladesh’s growth has achieved a
new height by crossing the 8% marks,
private investment has been hovering only
around a little over 23% of gross domestic
product. For a fast-growing country, such
low investment reduces the possibility of
higher job creation.
Moreover, a high lending rate is not only a
reflection of motivation for high profits, but
also a sign of inflationary pressure and loan
default risks.
Conversational economic theory suggests
that higher risk should be compensated with
higher return. In the context of banking, this
implies that risky loans should be changed
higher interest rates then the better ones.
It has been quite the country of Bangladesh.
Looking in to sector-by-sector interest rate
& NPL status reveals that in 2017, credit
provided for customer finance had a
weighted average lending rate of 11% even
though its average NPL rate was only 4% of
total ban provided to the sector, while credit
provided for trade & commerce had a
weighted average lending rate of 10%,
despite its average NPL rate being as high as
11% of total loan given to the sector. Thus,
good borrowers were being punished with
high interest rates bad borrowers were being
rewarded with low interest rates. This
reflects a distorted market which calls for
urgent attention on the part of the regulators.

DEPOSIT GROWTH OF PRIVATE BANKS

DEC’17 - 12.58
APR’18 - 12.5
JUN’18 - 12.73
SEP’18 - 12.05
DEC’18 - 11.59

WEIGHTED AVARAGE LENDING RATES

MAY - 9.96
JUN - 9.95
JUL - 9.71
AUG - 9.63
SEP - 9.54
OCT - 9.47
NOV - 9.5
 HOW INTEREST RATESGOING DOWN AFFECTS YOUR WALLET?

For consumers, this is good news. Since most major purchases involve financing, lower
interest rates will generally make purchases less expensive. And with rate falling across the
board, this should be somewhat positive news for your wallet.

I say ‘somewhat’ because it will have the opposite effect on savers. As debtors get the benefit
of lower interest payments, savers will experience a decline in interest income. That maces
interest going down a mixed bag, depending on whether you’re a debtor or a saver.

Words by FAHIM ISLAM