Bangladesh Bank formally asks banks to set single-digit interest rates
12:00 AM, February 25, 2020 / LAST MODIFIED: 11:54 AM, February 25, 2020

BB formally asks banks to set single-digit lending rates

The Bangladesh Bank yesterday instructed banks to set a maximum 9 per cent interest rate on all loan products except credit cards, in a move that suggests single-digit lending rate would actually be materialsing.

But borrowers will have to cough up an additional two per cent in penal interest along with the new rates if they default on their instalment payments, according to a central bank notice.

The new rates will come into effect on April 1.

On December 30, Finance Minister AHM Mustafa Kamal said that banks would have to fix the interest rate on lending at 9 per cent from the first day of April as per Prime Minister Sheikh Hasina's instruction.

The central bank, however, kept unchanged the interest rate of 7 per cent for exporters who take loans before shipping products.

In many cases, exporters take out loans to purchase raw materials in order to produce export-oriented items.

From this year, banks will also not be allowed 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 because of the new ceiling on the lending rates.

The existing high interest rate on loan products for small, medium and large industries has created a barrier for the expansion of the country's business and service sector, the central bank notice said.

Under such scenarios, the cost of production cost goes up, creating hurdles for businesses to market products.

This also creates indiscipline in the banking sector and hampers economic development in the country as a whole, the BB said.

"The single-digit lending rate will help the country achieve the desired economic growth."

The central bank, however, will not issue any notice on fixing the interest rate on fixed deposit schemes at 6 per cent as banks have already 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 per cent on fixed deposit receipts (FDRs) from February 1.

As of February 14, 21 banks brought down the interest rate on FDRs to 6 per cent. 

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