BB circulars on interest ceiling, loan rescheduling
Monday, 20 April 2009
Siddique Islam
The central bank of Bangladesh has asked the commercial banks to fix the interest ceiling on lending in five specific areas at 13 per cent to help mitigate the impact of the ongoing global economic meltdown.
Bankers said they will carry out the instruction, but it will leave a pressure on their profitability by the end of this year.
The Bangladesh Bank (BB) has also relaxed rules allowing loan rescheduling only for five export-oriented sectors, being affected by the meltdown, without any down payment until September 30 this year.
Two separate circulars were issued in this connection Sunday asking the chief executives of all commercial banks to maintain the latest interest ceiling on lending in the specific areas and rescheduling of loans for the affected sectors.
The five areas for which a ceiling of interest rate on lending has been fixed are agriculture, term loan to large and medium-scale industries, working capital to large and medium-scale industries, housing, and trade financing, according to the BB circular.
On the other hand, the five sectors at risk of defaulting on loan repayment because of the global recession are frozen food, jute, leather, textile (including spinning) and readymade garment (RMG), which are allowed by the central bank to enjoy the facility of loan rescheduling on the basis of bank-client relationship.
However, the interest rates on term loan and the working capital to the small industries are missing on the list. So the commercial banks are free to fix their interest rates for the small industries as per existing provisions.
On April 7 last, the banks agreed to the central bank proposal of not charging more than 13 per cent interest on lending in the five specific areas to help mitigate the impact of the ongoing global economic slowdown.
"All banks have agreed to charge maximum 13 per cent interest on lending, excepting credit card and consumer loans," BB Governor Salehuddin Ahmed told reporters after the meeting.
About the BB circular on interest ceiling, Managing Director of the National Credit and Commerce Bank Limited Nurul Amin said to the FE, "We'll implement the BB instruction relating to interest rates on lending in the five specific areas. But we've to slash the interest rate on deposits."
Earlier on April 9 last, four state-owned commercial banks (SCBs) decided to implement the 13 per cent interest ceiling on lending in the five specific areas without slashing the interest rate on deposits.
With a view to establishing a market-oriented financial system under the Financial Sector Reforms Programme (FSRP) activated in 1990, administered credit system has been abolished and banks have been given full freedom for portfolio selection.
"At present, banks are free to fix their rates of charge and commission against the services provided to their customers with some exceptions," the central bank said in its annual report for 2007-08.
Under the FSRP, the banks are free to charge or fix their interest rates on deposit and lending except export credit.
Loans at a reduced rate, 7.0 per cent, have been provided on all sorts of export credit since January 2004, according to the interest rate policy of the central bank.
Currently, banks can differentiate interest rate up to 3.0 per cent considering comparative risk factors concerning the borrowers in the same lending category.
On August 14, 2007, the central bank instructed the banks to fix the lending rates at maximum 12 per cent on import financing for 10 essential commodities to help curb the price hike of essentials in the local markets.
"The banks may charge maximum 13 per cent interest rate on import financing for the essential items as per the existing trade financing ceiling," a BB senior official told the FE Sunday while replying to a query.
He also said the central bank capped the maximum interest rate on lending in the specific areas to help entrepreneurs and businessmen face the challenges of the global recession.
The central bank has also made it clear that an interest of 7 per cent would continue to be charged on all export credits as was in the past while pulses, oilseeds, spices and maize will continue to be entitled to agricultural credit from the state-owned eight commercial banks and financial institutions at 2 per cent interest as per earlier circulars, the BB official added.
"The banks will be allowed to review their interest rates on lending and deposits more than once a month," he said, adding that the BB has asked the banks to comply with the central bank guidelines to reduce their service charges, fees and commissions.
"Clients from the five affected sectors, who will be affected by the recession, would be able to reschedule their loans until September 30 this year without down payment on the basis of bank-client relationship," the BB circular said.
The central bank of Bangladesh has asked the commercial banks to fix the interest ceiling on lending in five specific areas at 13 per cent to help mitigate the impact of the ongoing global economic meltdown.
Bankers said they will carry out the instruction, but it will leave a pressure on their profitability by the end of this year.
The Bangladesh Bank (BB) has also relaxed rules allowing loan rescheduling only for five export-oriented sectors, being affected by the meltdown, without any down payment until September 30 this year.
Two separate circulars were issued in this connection Sunday asking the chief executives of all commercial banks to maintain the latest interest ceiling on lending in the specific areas and rescheduling of loans for the affected sectors.
The five areas for which a ceiling of interest rate on lending has been fixed are agriculture, term loan to large and medium-scale industries, working capital to large and medium-scale industries, housing, and trade financing, according to the BB circular.
On the other hand, the five sectors at risk of defaulting on loan repayment because of the global recession are frozen food, jute, leather, textile (including spinning) and readymade garment (RMG), which are allowed by the central bank to enjoy the facility of loan rescheduling on the basis of bank-client relationship.
However, the interest rates on term loan and the working capital to the small industries are missing on the list. So the commercial banks are free to fix their interest rates for the small industries as per existing provisions.
On April 7 last, the banks agreed to the central bank proposal of not charging more than 13 per cent interest on lending in the five specific areas to help mitigate the impact of the ongoing global economic slowdown.
"All banks have agreed to charge maximum 13 per cent interest on lending, excepting credit card and consumer loans," BB Governor Salehuddin Ahmed told reporters after the meeting.
About the BB circular on interest ceiling, Managing Director of the National Credit and Commerce Bank Limited Nurul Amin said to the FE, "We'll implement the BB instruction relating to interest rates on lending in the five specific areas. But we've to slash the interest rate on deposits."
Earlier on April 9 last, four state-owned commercial banks (SCBs) decided to implement the 13 per cent interest ceiling on lending in the five specific areas without slashing the interest rate on deposits.
With a view to establishing a market-oriented financial system under the Financial Sector Reforms Programme (FSRP) activated in 1990, administered credit system has been abolished and banks have been given full freedom for portfolio selection.
"At present, banks are free to fix their rates of charge and commission against the services provided to their customers with some exceptions," the central bank said in its annual report for 2007-08.
Under the FSRP, the banks are free to charge or fix their interest rates on deposit and lending except export credit.
Loans at a reduced rate, 7.0 per cent, have been provided on all sorts of export credit since January 2004, according to the interest rate policy of the central bank.
Currently, banks can differentiate interest rate up to 3.0 per cent considering comparative risk factors concerning the borrowers in the same lending category.
On August 14, 2007, the central bank instructed the banks to fix the lending rates at maximum 12 per cent on import financing for 10 essential commodities to help curb the price hike of essentials in the local markets.
"The banks may charge maximum 13 per cent interest rate on import financing for the essential items as per the existing trade financing ceiling," a BB senior official told the FE Sunday while replying to a query.
He also said the central bank capped the maximum interest rate on lending in the specific areas to help entrepreneurs and businessmen face the challenges of the global recession.
The central bank has also made it clear that an interest of 7 per cent would continue to be charged on all export credits as was in the past while pulses, oilseeds, spices and maize will continue to be entitled to agricultural credit from the state-owned eight commercial banks and financial institutions at 2 per cent interest as per earlier circulars, the BB official added.
"The banks will be allowed to review their interest rates on lending and deposits more than once a month," he said, adding that the BB has asked the banks to comply with the central bank guidelines to reduce their service charges, fees and commissions.
"Clients from the five affected sectors, who will be affected by the recession, would be able to reschedule their loans until September 30 this year without down payment on the basis of bank-client relationship," the BB circular said.