9% interest rate cap on loans set to go in July

The Bangladesh Bank has finally agreed to move away from the 9 per cent interest rate ceiling on loans and implement a market-based rate from July 1. Banks have been following the interest rate cap since April 2020 in line with the central bank’s instructions. Analysts have long been demanding the removal of the ceiling saying the cap is not relevant to the market-based economy. Rather, it has created a distortion in the financial sector as a whole. Recently, their calls have grown louder after inflation hit a multi-year high last year and has stayed at the elevated level, since cheaper loans have not helped the country’s fight against escalated consumer prices. The International Monetary Fund also suggested the government follow the market-based interest rate mechanism. “The central bank has already fixed a structure to set the new rate and it will be unveiled in the next monetary policy to be declared in June,” said BB Spokesperson Md Mezbaul Haque. The issue was discussed in detail at a bankers’ meeting at the BB headquarters in the capital yesterday. Such meetings are usually held every three months to discuss burning issues in the banking sector. Abdur Rouf Talukder, governor of the central bank, presided over the meeting where managing directors of all banks were present. In January, the BB relaxed the lending rate cap for consumer loans, allowing banks to hike it up to 3 percentage points. This means banks can charge up to 12 per cent in interest rates on consumer credits.

Source: https://www.thedailystar.net/business/economy/news/9-interest-rate-cap-loans-set-go-july-3287151

BB decides to give NBFI licence to Nagad Finance

Bangladesh Bank yesterday decided to give Nagad Finance PLC the licence to perform as a non-bank financial institution (NBFI) in the country’s financial sector. Md Mezbaul Haque, spokesperson of Bangladesh Bank, said the central bank’s board of directors took the decision at a meeting at its headquarters in Dhaka. The central bank has allowed Nagad Finance to do business at a time when a number of NBFIs are struggling to repay depositors due to financial scams that have hit the sector in recent years. With the addition of Nagad Finance, the total number of NBFIs in the country will be 36. Another Bangladesh Bank official, on condition of anonymity, said the central bank will verify tax payment records of the directors of Nagad Finance before finally providing the licence. Besides, the company will have to make a presentation at a meeting of the central board, describing its detailed business plan. Nagad Ltd, which currently operates the mobile financial service (MFS) window of the Bangladesh Post Office, also plans to roll out an MFS under the new NBFI.

Source: https://www.thedailystar.net/business/economy/news/bb-decides-give-nbfi-licence-nagad-finance-3287171

Bangladesh Bank sets new lending rate formula

The Bangladesh Bank has set a new lending rate formula for commercial banks in which the rate will be fixed based on the weighted average rate of a six-month treasury bill plus a 3% premium. Bankers were informed about the new formula in a meeting presided over by Bangladesh Bank Governor Abdur Rouf Talukder on Sunday. The new formula, dubbed “smart short-term moving average rate”, will come into effect in July this year, lifting the single-digit lending rate cap. Currently, the six-month treasury bill rate stands at 6.99%, and adding a 3% premium to this will result in a lending rate of 9.99%. Md Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank while briefing reporters after the bankers’ meeting said there are two or three auctions of six-month treasury bills every month and the central bank will set a weighted average rate from those auction rates and additional 3% will be added to it for commercial lending.

Source: https://www.tbsnews.net/economy/banking/bangladesh-bank-sets-new-lending-rate-formula-609866