Increase banks' efficiency instead of lifting interest rate cap: FBCCI chief

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has opposed the proposal for lifting the existing interest rate cap – 9% on lending and 6% on deposits – and called for increasing the banks' efficiency to reduce inflation.

"If banks can reduce their cost of funds, there will be no need to raise interest rates on loans. And if the government increases subsidies on gas and ensures uninterrupted supply, industrial production will increase. Consequently, inflation will also decrease," said Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), at a "Meet the Press" event organised by the Economic Reporters' Forum (ERF) on Saturday (5 November).

Currently, the interest rate on deposits is not limited to 6% as banks are offering 7-7.5% interest on deposits. However, the industry will suffer if the cap of 9% interest for lending is removed, said the FBCCI president.

"Even if the interest rate on deposits increases, it is possible to give loans at 9% interest by increasing the banks' efficiency. This will be possible only if the banks can reduce their expenditure by 2-3%. The way banks in Bangladesh spend Tk2-3 crore to set up lavish branch offices is not seen in any other country in the world, including China," he continued.

He said, "Discipline in the banking sector should be ensured. Their accountability needs to be enhanced. Taking advantage of the dollar crisis, some banks made profits of Tk200-300 crore in a couple of months by charging Tk10-15 extra per dollar. Banks should not have exploited the crisis like that."

Calling for increasing gas supply to industries, he said, "Gas supply to households can be reduced by 5% and that can be supplied to industries. It is also possible to supply additional gas to the industry by cutting off illegal gas connections."

The FBCCI president said traders are willing to pay extra for gas. Moreover, increasing government subsidies a little can normalise gas supply.

"The government collects more as duties, taxes and VAT than the amount it subsidises for the energy sector. The FBCCI has proposed to the state minister for energy that tariff be slightly reduced to increase the supply of gas," said Md Jashim Uddin.

He said, "When the government decided to increase the price of diesel, we thought it did it to ensure uninterrupted power supply. Later the government talked about electricity rationing but what we actually saw was a lot of load shedding. Currently, 40% less electricity is being provided to the Rural Electrification Board (REB)."

Currently most of the factories are located outside Dhaka, where the REB is responsible for supplying electricity. Providing 40% less power to the REB means severe power outage in the factories, said Md Jashim Uddin.

He said export orders for readymade garments have already fallen by 30%. If the orders coming in at this time cannot be met on time due to a lack of gas and electricity, buyers will turn toward other countries and once customers leave, it is difficult to bring them back.

Emphasising the establishment of backward linkage of the readymade garments industry, he said, "Even if the country can get GSP Plus facility in Europe, two stages of production must be completed in the country. Our value addition in the readymade garments industry is only 6% while in China it is 36%.

"Man-made fibre accounts for 60-70% of the demand for readymade garments in the world, but Bangladesh still depends on export of cotton-based garments. Vietnam's top exported apparel is sportswear, China's top exported apparel is outer garments. But Bangladesh's biggest exports are low-cost denim and T-shirts."

Stressing the importance of establishing coal-based power plants to deal with the ongoing energy crisis, the FBCCI president said, "Due to the energy crisis, Germany is returning to coal-based power plants. We have coal reserves to meet the country's demand for 50 years. Demand for energy needs to be met for industrialisation to generate investment and employment in the country."

Placing emphasis on the agro processing industry, Jashim Uddin said, "There is a huge demand for halal products in the global market, but Bangladesh is not able to increase exporting such products despite being a Muslim-majority country. Non-Muslim countries like Brazil and Thailand occupy the top positions among the halal product exporters."

The FBCCI president also urged the government to take action against money launderers.

"When the Bangladesh Bank says there has been 200% overinvoicing, it means that it knows about money launderers. So the authorities should take action against them instead of talking," he said.

He also said the authorities should take action against anyone who manipulates the consumer goods market. There is a wide gap between the prices of consumer goods in the wholesale and retail markets and steps need to be taken to reduce this gap.

ERF Vice President Shafiqul Alam presided over the programme, which was conducted by SM Rashidul Islam, general secretary of the organisation.