Banks in tight race as rates slide

Lenders are locked in a stiff competition to bag clients with good track record, according to industry players.

If a lender offers a borrower a loan at 9 percent interest rate, another bids to hook the client at 8.5 percent. Even then, the second lender may not get the client because a foreign bank will grab the customer giving a much lower rate.

“We are facing stiff competition among too many banks. Consequently, the loan price has dropped significantly in recent months,” said Ali Reza Iftekhar, managing director of Eastern Bank.

Iftekhar said his bank has given loans even at 8 percent to clients who have a very good track record.

Banks compete not only with each other but also with a variety of other financial service providers, including non-bank finance and leasing companies.

Of the lenders, 57 are banks and 33 are non-bank financial institutions.

The nine fourth generation new banks and NBFIs are facing further challenges as the cost of their funds is relatively higher than their peers.

Bangladesh Bank data also shows that the interest rates, both for lending and deposits, are falling for the past few years because of poor demand for money in the market.

The weighted average lending rate of all banks has come down to 10.39 percent at the end of June, down from 11.05 percent in January this year. The rate was 11.67 percent in June last year.

On the other hand, the weighted average deposit rate declined to 5.54 percent in June, down from 6.21 percent in January this year. This rate was 6.8 percent in June last year.

Mutual Trust Bank is also giving loans to its good clients at 8 percent interest rate, said Anis A Khan, its managing director.

“But these loans are for the short term -- a maximum of 180 days,” said Khan, also the chairman of Association of Bankers Bangladesh, a forum of bank chief executives. Another managing director of a private bank said telephone companies used to borrow from his bank, but they do not do it now.

The foreign banks with operations in Bangladesh have grabbed the clients by offering much lower interest rates.

“We agreed to give a loan to a mobile phone operator at 8 percent, but a foreign bank netted the client by offering 6 percent interest rate,” said the managing director wishing not to be named.

A top businessman in the country, however, said they need low-cost loans for the long term -- with tenure of at least three years -- instead of what the banks are offering now.

“Even now, long term loans don't cost us less than 11 percent. We want the rate to be lesser to set up new factories,” said Mostafa Kamal, chairman and managing director of Meghna Group of Companies.

Bankers echoed the same. They said banks are now giving corporate loans at 10-12 percent interest, down from 13 to 14 percent a year ago.

Small loans now cost 14-15 percent, dropping from 16 percent or more last year.

Bangladesh's private sector credit posted 16.56 percent growth at the end of June, the highest in four years.

Bankers said this growth was driven by short-term loans, consumer loans and foreign loans taken by local entrepreneurs.