Private banks are yet to lower interest rates on deposits and lending, despite pressure from both the government and Bangladesh bank.
As the banks are unable to attract deposits at low interest rates, they are as a result unable to bring down interest on lending to single-digit rates, bankers opined.
The banks were supposed to reduce rates on deposits and loans to six and nine percent respectively, which was to be effective from July last year.
However, with banks offering low interest rates on deposits, savers are instead keen to park their funds with government savings certificates, which offer interest rate between 11 and 13 percent.
Besides, loan scams, money laundering and other irregularities have eroded people's confidence in the banking sector.
Banks now find themselves in a dilemma.
If interest rates on bank loan are lowered, entrepreneurs and businessmen will benefit. On the other hand, if interest rates on deposits are reduced, depositors will be discouraged to keep their money with banks, bankers said.
Banks usually set lending rates after calculating interest on deposits, its management cost and profits.
Former Adviser to the caretaker government AB Mirza Azizul Islam said in an open market economy, it is not possible to bring down interest rates through pressure.
Profit in deposits has decreased anyways. If the interest rate on deposits is lowered to six percent and inflation stays almost same, people will be discouraged to keep money with banks, he added.
The economist said the government is damaging discipline in market management with such directives.
Sheikh Fazle Fahim, president of Bangladesh Chamber of Commerce and Industries (FBCCI), said entrepreneurs are now in a tight corner, owing to high interest rates on loans, resulting in a rise in production cost."
To survive in business, they have to hike prices of goods. But if prices rise, inflation will go up. Thus, the overall economy will be affected, he added.
For the sake of industrialisation, the business leader urged that the banks to lower interest on loans to single-digit rates.
It will not be easy to reduce interest rate to single-digit, said Anis A Khan, managing director and chief executive officer of Mutual Trust Bank.
"The banks are not getting deposits unless they offer interest rates of 12 to 13 percent. As a result, it is not possible to provide loans at below 15 to 16 percent," he added.
"We are not even getting government deposits if we offer low interest rates. So how will we lend at single-digit rates?", he said.
The central Bank recently sent letters to managing directors of all non-government banks asking them to reduce interest rates.
Before that, at a programme, Prime Minister Sheikh Hasina came down heavily on the banks for not lowering interest rates.
But, after analysing statements of different banks, it was found that interest rates had gone up instead of coming down.
After the end of May this year, the average interest rate on deposits stood at 6.09 percent whereas it was 5.51 percent during the same time last year.
At the same time, the average lending rate rose to 10.27 percent in May this year, from 9.70 percent during the same month last year.
According to the BB data, only 15 out of 40 non-government banks are offering an interest rate of six percent or less for deposits. The remaining 25 banks are offering interest rates between 6.17 and 9.87 percent.
Among the fourth generation banks, Padma Bank and NRB Global Bank are ahead in collecting deposits at higher interest rates.