BB set to review interest rate on FSSP Fund

The central bank is set to review the interest rate on fund under its ongoing Financial Sector Support Project (FSSP) in January next, officials said.
Country's senior bankers urged the Bangladesh Bank (BB) to reduce the interest rate on the FSSP Fund at six-month London Interbank Offered Rate (LIBOR) plus 2.0 per cent from the existing level.
They made the call at a signing ceremony on the participatory agreement between the BB and six commercial banks held at the central bank headquarters in Dhaka on Tuesday.
The managing directors and chief executive officers (CEOs) of different commercial banks urged the BB governor to re-fix the interest rate on the FSSP Fund, taking the global interest rate situation into account.
"We'll review the interest rate on the FSSP Fund in January 2016, considering the overall market situation," BB Governor Dr Atiur Rahman told the FE after the meeting.
The central bank chief also said such foreign currency fund will play a pivotal role in meeting the growing demand for long-term financing for productive sectors in Bangladesh.
"We expect that the fund will also help attain maximum economic growth through boosting medium and long-term investment, particularly in productive sectors," the governor noted.
The central bank issued a circular along with 112-page operations manual on October 27 last to disburse US$ 300 million under its FSS project.
The funds will be mobilised with help of the World Bank to facilitate manufacturers on long-term basis, according to the BB officials.
Talking to the FE, a BB senior official said the interest rate will be set considering the respective banks' CAMELS rating.
Under the existing provisions, the banks will have to pay the interest rate between six-month LIBOR plus 3.00 per cent and six-month LIBOR plus 4.0 per cent to the central bank for using the refinance fund.
"The banks are allowed to impose maximum 3.0 per cent interest rate spread to disburse the fund to the entrepreneurs meaning that the importers will be able to receive the loan from the banks by giving interest rate at maximum 7.0 per cent," the central banker explained.
He also said the central bank will review the interest rate on the FSSF Fund considering local and global market situation. "We've urged the governor to re-fix the interest rate on the FSSP Fund in line with others international fund's interest rate," Ali Reza Iftekhar, Managing Director and CEO of Eastern Bank Limited, told the FE after the meeting.
Mr Iftekhar, also Chairman of the Association of Bankers, Bangladesh (ABB), said a local bank has already received fund at six-month London Interbank Offered Rate (LIBOR) plus 2.75 per cent from the Middle East countries.
Syed Mahbubur Rahman, managing director and chief executive officer of Dhaka Bank Limited, requested the BB to share the risk of the FSSF Fund that may help reduce the interest rate on the fund.
Currently, the central bank is providing a short-term foreign currency facility under the Export Development Fund (EDF) involving $ 2.0 billion for the country's exporters.
Besides, the central bank is working to launch another fund worth $200 million with its own resources to facilitate green financing in different productive sectors including textiles and leather, the central banker added.
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