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Bangladesh - Bank & Finance - November 27, 2022

BB plans to lift credit interest limit from Q3

Industry Desk: Borrowers may have to experience expensive loans as lending rate caps are being phased out to allow banks to return to their profitability amid inflationary pressure.
Bangladesh Bank (BB) plans to lift the limits on interest on credits in phases from the third quarter (Q3) of this fiscal year FY23, but unofficial hints already begin giving the banks a free play, sources said.
In accordance with the plan, officials also said that the central bank is set to lift the interest- rate cap on SMEs first, to be followed by working capital and industrial term loan in tandem.
This return to the open money market allows banks to raise the rate on interest to “balance out the crushing pressure of inflation.”
As part of the move to reintroduce market-driven lending rate, the central bank has verbally but unofficially allowed the banks to enhance interest rate for consumer goods, sources added.
The move, incidentally, comes a few weeks after a delegation of the International Monetary Fund (IMF) during their hectic discussions with the BB was suggesting the central bank to allow the interest rate to be market-driven.
Bankers welcomed the move, saying that the phasing out of the ceiling will not only help in making the banks sustainable but also facilitate investment to go into proper areas alongside ensuring efficiency in the market.

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