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Bank & Finance - 2 weeks ago

Bank can increase interest rate on previous loans

Staff Correspondent: By leaving the interest rate to the market, the bank can now increase the interest on the loan taken earlier. There will be no more obstacles in increasing the interest rate of all types of loans including exports, agriculture. Apart from this, after the implementation of the previous system ‘Smart’, a customer’s interest could not be increased again if 6 months had not passed. Now, if there is a variable reference in the permission letter, this instruction also does not have to be followed.
The central bank decided last Wednesday to increase the dollar rate, leave the interest rate to the market and raise the policy interest rate in accordance with the terms of the IMF’s $4.7 billion loan. These decisions were taken at a time when people are under pressure due to high inflation. Economists have long been making market-based suggestions for interest rates and the value of the dollar.
The former governor of Bangladesh Bank Salehuddin Ahmed told that increasing interest rates does not seem to control inflation. A large part of Bangladesh does not go to banks, let alone take loans. One thing to keep in mind is that wherever the IMF goes, there are three things to talk about – interest rate market, dollar market-based and monetary policy tightening. Pakistan, Sri Lanka, Argentina have not benefited from following this rule. As a result, we have to consider the context of Bangladesh instead of just listening to them. He said that paying interest was a big mistake. It is never good to hold the dollar rate or interest rates. Now must be well supervised. In addition to increasing the dollar rate, money laundering and hundi should be prevented. If the hundiwalas pay Tk 130, the dollar will go there.
Bankers said that under the new rules of Bangladesh Bank, 1 percent difference can be kept in the interest rate depending on the sector and customer. However, as earlier there was a provision to keep the interest rate low on the loans of agriculture and export-oriented industries, now it has not been kept. In this situation, how the loan interest rate should be increased will depend on how much the deposit interest has to be increased. Because high inflation has already reduced saving capacity. Government Treasury Bills are earning interest as high as 11.5 percent and bonds as high as 13 percent. Meanwhile, bank mergers have created a kind of anxiety among depositors. All in all, banks have to raise interest to get deposits. Now if the deposit interest increases, the loan interest will also increase.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank told that the interest rate will fluctuate slightly in the next two to one months as it is based on the market. But it is expected to be fixed soon. Because, according to Smart, the maximum interest rate was 13.55 percent. But the banks were taking 12 to 12.5 percent. As a result, it still does not seem to increase much. Apart from this there will be an oversight of the central bank. As a result, no bank can do anything outside the market.
Madhumati Bank Managing Director Safiul Azam told that the deposit interest should be increased in the current situation. It is a fact that if interest on deposits increases, interest on loans will increase. He said, now inflation is close to 10 percent. In this situation, the central bank’s main goal is to reduce liquidity in the market by making loans expensive.
From April 2020 to June last year, the interest rate was capped at 9 percent. However, after the start of the IMF’s loan program, a new method called ‘Smart’ was introduced to determine the interest rate from July last year. The interest rate was fixed by adding 3 percent to the 6-month average interest on smart or government treasury bills.
Bangladesh Bank released last March smart. Accordingly, the highest interest rate was 13.55 percent. Banks did not have the opportunity to increase interest rates on deposits for a long time due to the ceiling on lending rates. But now due to the market-based loan interest rates, the competition will start with deposit collection. Naturally, the loan interest rate will increase.

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