Funds are set to be costlier as the regulator raises the benchmark rate SMART by 1.41- percentage points to 7.2 per cent from July's 7.1 per, with large-scale industries having to pay the highest.
Bangladesh Bank (BB) data published on Sunday show the latest benchmark lending rate. The central bank of Bangladesh prepares the SMART based on the treasury yields. Commercial banks use it as their benchmark rate or reference rate for fixing lending rates to be charged from borrowers.
The SMART (six-month moving average rate of treasuries) was 7.1 per cent during July last. It was 7.14 per cent in August. And now it is 7.2 per cent.
The BB prepares and publishes the reference rate every month on its official website as guide for the banking sector to go by.
Sources at the BB said the SMART rate "has been enhanced primarily because of the central bank's recent policy shift from injecting 'high-powered money' into the economy to contain growing inflation".
The reference lending rate, encapsulated as 'SMART', applies to banks and non-bank financial institutions (NBFIs).
In practice, SMART-plus a margin of up to 3.00 per cent will be applicable for banks, and SMART-plus a margin of up to 5.00 per cent for NBFIs.
However, the lending activities for CMSMEs and consumer loans may be subject to an additional fee of up to 1.00 per cent to cover supervision costs. There will be no changes in the interest rates applicable to credit card loans.
A UNB report adds: The new interest-determining method was introduced on July 1, 2023. Earlier, from April 2020, the maximum interest rate on bank loans had been 9.0 per cent.
Accordingly, in the current month of October, banks can take a maximum of 10.20-percent interest on large-scale industrial loans.
On the other hand, non-banking financial institutions (NBFIs) can charge interest against loans by adding a margin at a maximum rate of 5.0 per cent. Their maximum interest rate will be 12.20 per cent and 9.20 per cent on deposits.
However, the lending rate set in October cannot be changed within the next six months for industrial loans.
This will make the highest interest rate on agricultural loans in September 9.14 per cent. An additional 1.0-percent supervision charge can be levied on CMSME, personal, and car purchase loans.
Last January, the smart rate was 6.96 per cent. Thereafter, it gradually increased every month and reached 7.13 per cent last May. But in June and July, it decreased slightly to 7.10 per cent.
However, it increased to 7.14 per cent in August and reached 7.20 per cent in September.
On the advice of the International Monetary Fund (IMF), Bangladesh Bank introduced the market-based interest regime.
The interest-rate cap of 9.0 per cent was imposed in April 2020 to facilitate traders.
A research report by the central bank also recommends withdrawing or increasing the interest-rate limit. But Bangladesh Bank was silent as the government did not give positive consent. One of the conditions of IMF's $4.7-billion loan is to make the interest rate market-based. In the light of that condition, the new interest system was introduced.
jasimharoon@yahoo.com
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