‘The central bank must take decisions independently’

A year and a half ago, banks declared that interest rates on bank loans would be brought down to a single digit. The government provided private banks certain facilities to this end, but the interest rates are still not single digit. The government has formed a committee again to look into the matter. Former chairman of the Association of Bankers Bangladesh (ABB) Anis A Khan speaks to Prothom Alo about these issues.


Prothom Alo: One and a half years ago, bank chairmen had announced that interest on bank loans would be lessened. Why has that not happened?

Anis A Khan: Funds from various government agencies are deposited in the banks at high interest rates. There have been letters asking for the renewal of these deposits. The government agencies want to know the interest rates. If the interest is less, they withdraw the money. Again, the shortfall in revenue collection drives the government to increasing its borrowing from the banking sector. This may further lessen private sector loans. That would make it difficult to reduce interest on bank loans. After all, this supply and demand of funds determines the interest rates.

Prothom Alo: The private banks took certain facilities from the government when they declared that interest rates would be brought down. The government and Bangladesh Bank also made certain changes in policy. These benefits never reached the public.

Anis A Khan: Without these facilities, the interest rates would have been much higher. The banks have reduced interest rates from 14 per cent to 12 per cent. Some have even brought this down to 9 per cent. It will take time to reduce this further. If the interest rates are suddenly cut, the banks will face losses. This will have a negative impact on the share market. It will also have a negative impact on the government’s revenue earnings.

Prothom Alo: The government has formed a committee to reduce interest rates. Will that manage to actually reduce the rates?

Anis A Khan: The committee will surely come up with a good solution. But it’s the supply and demand of funds that regulates the interest rates. This is how interest rates are determined the world over. Bangladesh can’t be an exception. Also, if default loans increase, so will interest rates. Default loans must be reduced. Measures have to be taken in this regard. It must be seen whether the loans are going into default because of the high interest rates. It is important to get funds from the businessmen.

Prothom Alo: Your career in banking spans 37 years. So tell us, how is Bangladesh’s banking sector faring?

Anis A Khan: The way the banking sector is running at present, the banks are heading towards acquisition or mergers. Such initiatives apply to both state-owned and private banks. There is no alternative to this. This is happening all over the world, even in India. And the banks must strictly follow corporate governance. The central bank must be allowed to take decisions independently.

Prothom Alo: Why are there bad loans in the banks?

Anis A Khan: Around 80 per cent of the banks’ business comes from Dhaka and Chattogram. Uneven competition emerges among the banks in trying to catch these businesses. Banks sometimes make compromises. The bank’s job is to take deposits from the people and then invest these funds. The banks must be careful about to whom they are providing the loans, whether the borrower is an honest businessman or not, whether the funds are being properly utilised. Such monitoring must be stepped up.

Prothom Alo: What about good governance in the banking sector? How independently is the central bank able to function?

Anis A Khan: The lack of good governance creates problems in the banks. The initiative for good governance must come from the government. There are many experienced and highly educated persons within the government. There are many highly educated persons in the banking sector too. I would appeal to them to ensure best corporate governance in the banks. If they want, all can be fixed in the finance ministry, the central bank and the commercial banks. The country’s banking sector will be fine then. The central bank must be given independence to take decisions. Even 90 per cent of the independence given to the central banks of England and Japan would be good.

I feel the central bank should listen to everyone, but take its decisions independently. The number of banks has increased in the country. Just two deputy governors in Bangladesh Bank are not enough. Two posts have long been lying vacant. It is imperative that steps be taken to immediately fill these posts.

* This interview appeared in the print edition of Prothom Alo and has been rewritten in English by Ayesha Kabir