Bangladesh Bank Training Academy Journal

Abstract

Commercial bank’s interest rates (lending rates) behavior has become major issue in Bangladesh. It is influenced by factors, such as-reserve requirements, policy rates of Bangladesh Bank, deposit rates, CPI, NSD certificate rates, banks’ expenditure income ratio, profitability, liquidity, solvency, monetary and fiscal policy stances, and non-economic factors. In recent times, private sector credit growth was lower than the expected growth mainly due to investors less consciousess and their go slow strategy in the backdrop of political uncertainly. An attempt has been made to analyze the factors influencing lending rate behavior in Bangladesh using Ordinary Least Square Method (OLS). It is found that CPI, excess reserve, deposit rate and policy rate significantly affect interest rates (lending rates) behavior of commercial banks. However, it is commonly believed that NPL is the most crucial factor that forces banks to fix high lending rates. But in our study we have found that NPL is no statistically significant. In the perspective of existing higher lending rate, it is necessary to take systematic efforts to put in place a reasonable interest rate structure in a ustainable manner taking socio-economic realities into consideration.