Banks will use simple interest rates from now on all loans instead of present practice of compound rates to lower the burden on borrowers, said Finance Minister AHM Mustafa Kamal on Monday.
“In the country, there is a common practice of charging compound interest rates on bank loans, which is against the global practice. From now on, simple interest rate will be applied on bank loans,” said the finance minister.He informed the press about the new decision after a meeting with all banks and financial institutions board of directors at the city’s NEC auditorium.
The minister identified the practice as a major cause behind rising of non-performing loans and weak health of the financial sector.
“Businessmen have to take immense risks for starting off any business. And the compound interest rate put an extra burden on them, which sometimes leads to collapse their business,” he remarked.
He reiterated that special audits will be conducted in all banks and financial institutions to verify the assets mentioned in their balance sheets. The cracks in the banking system has now widened to an extent which calls for a quick response from the policy makers, he stressed.
In the process, honest and bad businessmen as well as their associates will be identified to support the good ones while bringing unscrupulous ones to book. “we’ll apply all our legal jurisdiction to punish the bad businessmen and their supporters to reclaim the default loans,” Kamal warned.
Ge clarified that they have no intention to put them behind the bars or wholesale shutting down of their businesses so that employees of good business entities do not lose their job. “We want to rearrange the banking sector based on a win-win situation,” he added.Criticizing the practice of providing long-term loans against short-term deposits, he informed that they want to create a bond market soon for helping long-term financing. The finance minister requested all not to come up with any kind of bank related recommendation to him.
The persons well conversant with banking and financial system will be appointed to bank boards after taking interviews to ensure proper persons sit in the boards, he pointed out.
However, he doesn’t think that the health of the banking sector that much bad as perceived by common people. As a new financial instrument, the government will soon introduce crop insurance in Rangpur division and haor areas to lower risk of exposure to natural disasters.