Non-bank financial institutions (NBFIs) still follow SMART-driven interest regime although the central bank abolished the reference rate almost two months ago, for a communication gap.
However, the commercial banks have come out of the SMART regime soon after the decision of the monetary policy committee (MPC) of the Bangladesh Bank (BB). But NBFIs didn't as the central bank has not issued any circular regarding the shift towards market-based interest rate yet, officials and market players said.
As a matter of fact, this created some sort of confusion among the financial institutions in terms of setting interest rate, according to them.
The MPC in its latest meeting on May 08 last decided to discard the SMART-centric arithmetic to fix rate on the money market and asked the banks and NBFIs to go by market-driven interest rate.
According to minutes of the meeting, to move towards a market-based interest regime, the existing reference rate SMART for determining the lending rates of banks/NBFIs is hereby abolished.
"Banks and NBFIs can set the interest rates based on the interaction of demand and supply on the market as well as the banker-customer relationship," reads the meeting resolution instructing stakeholders to make the decision effective immediately.
Soon after the MPC meeting, the BB issued a circular for the banks regarding implementation of the decision and the banks are now following the edict. No such official instruction is issued yet for the NBFIs.
Seeking anonymity, a BB official said the regulator would issue a complete guideline for the financial institutions to this effect soon as there is a fear that some of the NBFIs might offer very higher rates for both deposit and lending by taking the advantage of the market-rate regime, which could create a distortion.
"We're working on it. We will soon issue a specific guideline for them to this effect," the central banker said.
Managing Director and CEO of Bangladesh Finance Ltd Md Kyser Hamid says the central bank earlier told them that it would issue a guideline regarding the matter. "So, we're still waiting for the guideline."
Asked how they calculate the interest rate in the post-SMART era, he said they did not bring any change to the rates. "The rates are same as we charged before abolishing the SMART."
Before suspending the SMART, the NBFIs can charge maximum interest rate for lending at 15.50 per cent (SMART-plus five percentage points) while maximum deposit rate 12.50 per cent (SMART-plus three percentage points)
"We're literally following the rates," says Mr Hamid.
Md Golam Sarwar Bhuiyan, chairman of NBFIs' apex body Bangladesh Leasing and Finance Companies Association (BLFCA), says they have somehow managed the rates as the regulator has not issued any dos for them as yet.
"The central bank told us of issuing instructions in this connection. Until we receive it, things (rates) will remain same," he adds.
However, it is learnt that the central bank would possibly issue a separate reference rate for the NBFIs, which will be aligned with the weighted average rates in banks by giving a small margin.
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