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Interest caps on banks’ lending will be lifted from July as Bangladesh Bank on Monday issued guidelines.
However, the new lending-rate mechanism is based on benchmark reference rate effective from next month.
Under the new lending regime, the central bank will fix a reference rate based on the moving average of 182-day treasury bills that will be called by SMART (Six-month Moving Average Rate of Treasury Bill).
With the issuance of the circular on modus operandi, the much asked for demand of banks to remove the existing cap on lending is going to be met.
Bangladesh Bank’s debt management department will release the SMART Index on the first working day of each month on the Bangladesh Bank website, it said in a circular.
Banks can fix the lending rate by adding a maximum three per cent of margin with the SMART index, read the circular issued by Bangladesh Bank’s Banking Regulation and Policy Department (BRPD).
It also said that the central bank will determine the reference rate for July by calculating the average of 182-day treasury bills from December 2022 to May 2023.
The lending rate is set to be increased and moved to double digits as the six-month moving average of the risk-free government securities up to May is 7.17%.
With 3 percentage points added up to the SMART index, the maximum lending rate will be 10.17%.
In terms of agriculture and rural lending, the country’s scheduled banks can add a maximum 2 percentage points with the SMART, according to the circular.
Regarding personal and auto loans under the CMSME financing and consumer credits, the circular says the banks can impose a maximum 1 supervision charge in addition to the new lending rate and the supervision charge can be imposed once a year.
The Islamic banks have also been instructed by the Bangladesh Bank to go by the same rules calculating profits.
(DT)
