BB relaxes provisioning for consumer loans

The central bank yesterday relaxed provisioning for consumer financing as part of its effort to implement a 9 per cent interest rate on all lending products.

The move will give a boost to the dwindling demand for consumer products, said officials of the Bangladesh Bank.

Banks and non-bank financial institutions will now be allowed to keep 2 per cent provisioning against consumer loans instead of 5 per cent previously, according to a central bank notice.

The banking regulator kept unchanged the provisioning ratio of 1 per cent for home loans.

Similarly, the provisioning for loans to professionals and credit cards has also been remained unchanged at 2 per cent. The outstanding amount of consumer financing in the banking sector stood around at Tk 57,000 crore as of October 2020.

The cut in the provisioning would make as much as Tk 1,200 crore immediately available for banks.

Lenders have rolled out many types of consumer loans to help clients purchase furniture, freeze, and television and other items. Some banks have even introduced marriage loans.

The central bank earlier asked banks to fix their interest rate at 9 per cent on all loan products except credit card.

But, the operational cost on consumer financing is much higher than the other loan products as lenders have to monitor such financings strictly.

People from the middle-income groups now feel discouraged to avail consumer financing because of the economic hardship brought on by the coronavirus pandemic, a central banker said.

The relaxed provisioning will encourage banks to cater loans to clients at a lower interest rate. This will help increase the demand for consumer goods as well, the central banker said.

Lenders have to keep a maximum 5 per cent provisioning for unclassified loans and the highest 100 per cent for the defaulted loans of bad category.