The central bank makes the announcement in line with the IMF’s recommendation on a market-based system under its credit programme
Published : 09 May 2024, 02:51 AM
Banks are now allowed to set interest rates on loans on the basis of demand and supply as the central bank has lifted the reference rate.
Bangladesh Bank made the announcement on Wednesday in line with the International Monetary Fund’s recommendation on a market-based system under its $4.7 billion credit programme for the country.
The IMF also reached a staff-level agreement with Bangladesh on Wednesday for a $1.15 billion third tranche of the loan.
In recent months, the cap on lending rates was based on Six months Moving Average Rate of Treasury Bill or SMART. The banks were allowed to charge customers 3 percentage points above the reference rate for loans. Based on calculations under the system, the ceiling was 13 percent until now.
This system was introduced after Bangladesh agreed to the IMF loan programme. Before that, Bangladesh had a 9 percent interest ceiling on bank loans since 2020.
Bangladesh Bank said in the latest notice that the SMART-based lending rate system has been withdrawn for a market-based system in line with good international practices.
The banks will fix the rates for different sectors and they are allowed to charge the customers 1 percentage point more or less than the fixed rate in consideration of risks.
In case of changeable rates, the contract must mention how much the rate can be raised and how many times in a year.
For term loans, the banks will be allowed to charge a maximum 1.5 percent penalty on unpaid instalments.
They cannot impose service charge or extra interest.