Bangladesh Bank relaxes provisioning for consumer loans
The central bank yesterday relaxed provisioning for consumer financing within its effort to implement a 9 percent interest rate on all financial products.
The move gives a boost to the dwindling demand for consumer products, said officials of the Bangladesh Bank.
Banks and non-bank financial institutions will now be permitted to keep 2 percent provisioning against consumer loans rather than 5 percent previously, according to a central bank notice.
The banking regulator kept unchanged the provisioning ratio of 1 1 percent for home loans.
Similarly, the provisioning for loans to professionals and credit cards in addition has been remained unchanged at 2 %. The outstanding amount of consumer financing in the banking sector stood around at Tk 57,000 crore by October 2020.
The cut in the provisioning would make up to Tk 1,200 crore immediately designed for banks.
Lenders have rolled out various kinds of consumer loans to greatly help clients purchase furniture, freeze, and the television set, and other items. Some banks have even introduced marriage loans.
The central bank earlier asked banks to fix their interest at 9 percent on all loan products except credit cards.
But, the operational cost of consumer financing is a lot greater than the other loan products as lenders need to monitor such financings strictly.
People from the middle-income groups now feel discouraged to avail of consumer financing due to the economic hardship due to the coronavirus pandemic, a central banker said.
The relaxed provisioning will encourage banks to cater loans to clients at a lesser interest rate. This can help raise the demand for consumer goods as well, the central banker said.
Lenders need to keep a maximum of 5 % provisioning for unclassified loans and the best 100 percent for the defaulted loans of the bad category.
