Home Bank & Finance Commercial banks started increasing interest rates
Bank & Finance - July 10, 2023

Commercial banks started increasing interest rates

Mahfuja Mukul: Banks have started raising interest rates on loans. In the meantime, banks have increased the loan interest rate up to a maximum of 2 percent depending on the customer. Some banks have already started imposing new interest rates and deducting additional installments. But some banks are waiting to understand the situation. Although banks have increased interest rates on loans, they have not increased interest rates on deposits.
Bankers say that if the interest rate on loans goes up, it will push up the interest rate on deposits. Currently, the average interest rate against deposits is around 6 percent. However, many banks suffering from liquidity crisis are collecting deposits at 8 percent interest.
Incidentally, ‘SMART’ (Six Months Moving Average Rate of Treasury Bills) Interest Corridor has come into effect from July 2. Under this rule, the interest rate is fixed on the average interest rate on 182-day Treasury Bills, which is being called SMART. As a result, Bangladesh has come out of the 9 percent maximum interest rate limit introduced in the face of the demands of businessmen and bank owners. As a result of this rule, the interest rates of all types of bank loans are increasing.
That is, Bangladesh Bank informs this rate at the beginning of every month in the ‘smart’ method. Smart was 7.13 percent last May, which decreased to 7.10 percent in June. Some banks have fixed the new interest from July taking into account the May rate and some the June rate. However, most of the banks have chosen the absolute maximum limit in determining the interest rate.
Generally, the asset-liability management committee (ALCO) of banks reviews the liquidity situation and decides the interest rates on deposits and loans.
According to the central bank’s instructions, the interest rate on the loan can be determined by adding a margin of 3 percent to the average interest rate on 182-day Treasury Bills. An additional 1 per cent supervisory fee will be added to personal loans and car loans under the Micro, Small, Cottage and Medium (CMSME) and consumer credit. Interest rates on agricultural and rural loans can be fixed by adding a margin of 2 percent to SMART. Smart was 7.10 percent in June.
As a result, the bank loan interest rate is now 10.10 percent. And personal loans and car purchase loans under CMSME and consumer loans will have an interest rate of 11.10 percent with an additional 1 percent supervisory fee. The interest rate on agriculture and rural loans will be 9.10 percent. Earlier, the interest rate on agricultural loans was 8 percent. The interest rate on all other loans was 9 percent. And the credit card interest rate remains the same as before at a maximum of 20 percent.
Meanwhile, United Commercial Bank and Mutual Trust Bank have set new interest rates from July. These two banks have fixed the interest rate of 10.10 percent excluding charges for large, small and medium. Private BRAC Bank has implemented interest rates of 8.10 to 10.10 percent for small, medium and large term and current capital loans. Apart from this, private prime and mercantile banks have also increased interest rates.
Private Islamic banks have also made changes in profitability against investment. In the letter sent from the Islami Bank head office to all branches, it is said that the profit on investment for personal and car purchase will be 10.13 percent. 1 percent supervision fee will be added to this. Profit on CMSME investment will be 11 to 11.13 percent. The CMSME sector’s export financing profit will be 9 percent. The profit on agricultural loans will be 9.13 percent.
Apart from this, the profit on current capital investment of corporates will be 10 percent, 8 percent on exports, 10.13 percent on car purchase and 10.13 percent on all other loans. According to the bank, they have increased the profit on investment following the directives of Bangladesh Bank, which have already been implemented.
Similarly, Al-Arafah Islami Bank, First Security, Union, Global Islami and Social Islami Bank have also started setting new profits. Exim Bank has fixed the same interest rate.
However, there was a directive from Bangladesh Bank that the new interest rate cannot be applied without informing the customer. The Bank may fix either fixed or variable interest rate based on the consent of the customer. That is, if the bank wants to set the interest rate at any number within the maximum margin. However, no bank can change the interest rate of a customer before six months.
In this context, Syed Mahbubur Rahman, former chairman of Association of Bankers, Bangladesh (ABB) and managing director of private mutual trust bank, said that according to the new decision of the central bank, some banks have implemented new interest rates from July. The pressure has already started to increase the deposit interest. Many banks charge 8 percent interest on deposits.

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