Bangladesh Bank formally asks banks to create single-digit lending rates
The Bangladesh Bank yesterday instructed banks to create a maximum 9 % interest rate on all loan products except bank cards, in a move that suggests single-digit lending rate would actually be materialsing.
But borrowers will have to cough up yet another two % in penal interest along with the new rates if indeed they default on the instalment payments, according to a central bank notice.
The new rates should come into influence on April 1.
On December 30, Finance Minister AHM Mustafa Kamal said that banks would have to fix the interest on lending at 9 % from the first day of April as per Prime Minister Sheikh Hasina's instruction.
The central bank, however, kept unchanged the interest of 7 % for exporters who take loans before shipping products.
Oftentimes, exporters take out loans to purchase raw materials so that you can produce export-oriented items.
Out of this year, banks may also not be permitted to lower the disbursement of funds flowing to the industrial sector below their average credit growth in the last three years.
The provision came as central bankers fear that banks may cut loans to industries due to the brand new ceiling on the lending rates.
The existing high interest on loan products for small, medium and large industries has generated a barrier for the expansion of the country's business and service sector, the central bank notice said.
Under such scenarios, the price of production cost rises, creating hurdles for businesses to advertise products.
This also creates indiscipline in the banking sector and hampers monetary development in the united states as a whole, the BB said.
"The single-digit lending rate can help the country achieve the required economic growth."
The central bank, however, won't issue any notice on fixing the interest rate on fixed deposit schemes at 6 % as banks have previously started to do so in preparation for the 9 per cent lending rate, said a BB official.
On January 28, the Association of Bankers, Bangladesh, a forum of managing directors of banks, took the decision to provide not more than 6 % on fixed deposit receipts (FDRs) from February 1.
As of February 14, 21 banks brought down the interest on FDRs to 6 %.
