High bank charges linked to high GoB savings, T-bill rates

Holiday Desk

The country's private commercial banks (PCBs) have linked their higher charges and interest spreads to their service costs and the high interest rates provided by the government through saving instruments and long-term treasury bills.
   The Bangladesh Bank Governor discussed the issue at a meeting last Monday at the central bank with the members of Bangladesh Bankers Association (BAB) to find how to lower the bank charges and narrow gaps between deposit and lending rates. However, the PCB policy makers raised the central bank's high interest rates on its savings instruments and long-term treasury bill to justify their high rates.
   After the meeting, the BB Governor told newsmen that the banks have admitted that their charges and spreads were high and they agreed in principle to rationalise the same.
   The government had earlier decided to persuade commercial banks, both PCBs and NCBs, to reduce their charges and interest spreads, which is considered too high compared with other countries.
   The banks should charge reasonable rates which would be beneficial to businesses, the governor said after the meeting with the association members.
   'Nobody will be allowed to take undue advantage and business must not be exposed to avoidable losses,' he said.
   The BAB is the organisation of the chairmen of private banks and has agreed to put forward its suggestions by February 28 and the central bank will take the final decision after scrutinising the whole issue, Salehuddin said.
   'The central bank will find a way out taking into account the interests of depositors and shareholders,' he said. The governor, however, pointed out that the central bank had no intention to dictate commercial banks to follow any fixed rates or impose any decision on them.
   Chairmen of the bank boards raised various problems faced by the banking sector and urged the central bank to take up those matters with other government agencies.
   The interest spread in most banks is about 6 per cent, claimed Nazrul Islam Majumder, chairman of BAB. 'Private banks' give prompt services and for that they have to recruit skilled manpower at higher salaries, which raise their running costs,' he explained.
   It would be difficult to reduce spread when interest rate on National Savings certificates remained 12 per cent and that on 20-year treasury bills 15.5 per cent, he pointed out. The banks still can reduce their spreads by minimising their own costs, said a central bank official.
   Average deposit rate was 6.76 per cent in September, while deposit grew by 7.3 per cent in July-December period, he pointed out.
   Average spread between deposit and lending rates stands at 5.88 per cent in the state-owned banks, 6.17 per cent in private commercial banks and the highest 8.91 per cent in foreign commercial banks.
   The finance adviser at a meeting a couple of weeks back warned the banks against doing whatever they like in the name of free market economy.
   The chief adviser also showed his discontent at the high spread and instructed the central bank to find out a way to reduce the gap to a level between 4 and 5 per cent.
   The central bank identified 27 banks which have spread of over 5 per cent and discussed the issues with the management of the banks. It has formed a four-member committee to analyse the spread issue.
   The committee recently proposed a uniform formula to calculate spread.

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Bangladesh's exports to US drops

Asjadul Kibria

Bangladesh's annual export growth in its largest market, United States, has dropped significantly last year over the pervious year, says the data released by the US foreign trade division.
   During 2007, Bangladesh's exports to the US market stood at $3.43 billion, registering around 5 per cent growth over $3.27 billion in 2006. But in 2006, the growth rate was 21 per cent over $2.7 billion in 2005.
   The trade balance, however, continues on heavily tilted to Dhaka as it reached near $3 billion last year. Bilateral trade between Dhaka and Washington also reached closer to $4 billion, showed the data.
   The US trade department has also ranked Bangladesh at 32 in terms of their volume of trade deficit in 2007 which was 35 in the previous year.
   Meanwhile, a press release issued by the Bangladesh Embassy in Washington said that an increase of $161.18 million between 2006 and 2007 could be considered a ''notable boost considering the recent natural and political upheaval in Bangladesh'' during that period as well as slowdown of US economy beginning from the middle of 2007.
   Referring to market analysts, the press release also said that Bangladesh could expect further increase in its market penetration in the USA if the ongoing policy and institutional reforms could be strengthened along with reforms in the working environment of exporting sectors.
   But slowdown of export in US market appeared as a concern for the country's external sector as most of it originated from slower growth in readymade garments exports.
   Import from the US has also surged in last year to $45.6 million from $33.3 million in 2006. Thus two-way bilateral trade enhanced to around $3.9 billion last year which was over $3.6 billion in 2006.
   Dhaka is, however, desperately trying to get tariff-free market access in the US. Many believe that the duty-free access would, according to the Hong Kong Ministerial declaration of the World Trade Organisation (WTO), developed countries should allow duty-free, quota-free market access for 97 per cent of the least developed countries (LDCs) exportable products by 2008.
   In fact, Bangladesh is one of the top duty payers while entering into the US market. In 2006, US customs have collected some $50 million as import duty on Bangladeshi products while UK and France paid $43 million and $36.6 million respectively. At the same time, export from these countries stood at $53.5 billion and $36.8 billion respectively. According to the Progressive Policy Institute, a Washington-based research organisation, ''American tariff system is uniquely tough on low-income countries in Asia and the Muslim world, with Cambodia, Bangladesh, Nepal, and a few others being the extreme cases.''
   Meanwhile, a bill titled New Partnership for Development Act (NPDA 2007) has been placed in the US Congress in October last. The basic proposition of the bill is to provide tariff-free access to all the products originated in the Least Developed Countries (LDCs) with some rigid conditions.
   Bangladesh has taken the issue seriously and a technical committee, constituting government officials, businessmen and trade experts, have been formed.
   Many believe that despite several rigid conditions there is some scopes to negotiate with US to relax the conditions and make it favourable for Bangladesh. The NPDA is an opportunity to diversify export to the US. Thus a well-planned strategy is required to develop and implement by public and private sector jointly.

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