Business Desk :
At present, banks are free to fix the level and structure of interest rates under the market based interest rate policy, says a press release.
The Board of Directors of banks determines interest rates on their own considerations of profitability. Though the interest rate policy is market based, Bangladesh Bank often sets the maximum cap for loans in different priority sectors considering national interests and the overall macroeconomic situation. The current ceiling on interest rates for pre-shipment export loans is 7 percent and for agricultural loan is 11 percent. The effective rate of interest for the Export Development Fund (EDF) is less than 3 percent. As of today, Taka 235 billion has been financed with the EDF to the export-oriented enterprises. Around Taka 260 billion has been disbursed to the buyers’ credit sector at 6 percent interest rate. The agricultural credit disbursement target for FY 2014-15 is Taka 160 billion, of which 72 percent has been disbursed during the first nine months of current fiscal.
No more than 10 percent (9 percent in most cases) interest rate can be charged under the Bangladesh Bank refinance scheme for SMEs and women entrepreneurs; 4 percent rebate rate is applicable for the agriculture sector for cultivation of pulses, oilseeds, and spices. Bangladesh Bank has also submitted a proposal to the Ministry of Finance for providing SME loans to the dairy farms at the similar rebate rate. Taka 57 billion has been refinanced against loans to the SME sector till date. Businessmen now can avail loan facilities from foreign sources at lower rate (London Interbank Offer Rate or LIBOR plus 3 to 4 percent, which is less than 5 percent). Over the last five years, Bangladesh Bank has approved around Taka 500 billion of loans from foreign sources. These low cost EDF, buyers’ credit, agricultural credit, SME refinance, and foreign loans are significantly contributing towards reducing interest rates in the domestic financial market. Moreover, there is a rebate on accrued rate of interest for good borrowers.
Interest rate depends mainly on banks’ costs of fund, administrative costs, provision expresses, profit margins, and so on. The overall cost of fund for banks is decreasing due to rationalization of various service charges, fees, commission charges etc, avoiding high expenditure to establish bank branches, and adoption of policies towards limiting expenditure for the purchase of transport vehicles. Though banks’ onetime initial costs have increased a bit because of implementation of the information technology as instructed by Bangladesh Bank, the costs of fund are gradually falling over time.
In recent months, lending rate has not declined at the same pace as the deposit rate; however, with intensive monitoring and moral suasion from Bangladesh Bank, both the lending rate and the interest rate spread have decreased to 11.93 percent and 4.87 percent respectively.
Recently, the government has announced reduction of the interest rate on all types of National Savings Certificates by around 2 percent. As a result, the weighted average lending rate is expected to fall further in the coming days. Bangladesh Bank has been actively working towards reducing the lending rate to a rational level so as to ensure an investment friendly economic environment. At present, banks have sufficient liquidity to expand loans to the potential borrowers. Bangladesh Bank has therefore been promoting credit flows to the productive sectors at lower rates of interest through various financial inclusion activities which are contributing towards the socio-economic development along with ensuring financial and macro stability. Following flexible monetary policy, Bangladesh Bank has been continuing its strategic trend of providing necessary financial flows to the productive sectors for sustainable development. The common people and entrepreneurs are already getting the expected benefits. We hope that this trend will continue and will be extended further.
At present, banks are free to fix the level and structure of interest rates under the market based interest rate policy, says a press release.
The Board of Directors of banks determines interest rates on their own considerations of profitability. Though the interest rate policy is market based, Bangladesh Bank often sets the maximum cap for loans in different priority sectors considering national interests and the overall macroeconomic situation. The current ceiling on interest rates for pre-shipment export loans is 7 percent and for agricultural loan is 11 percent. The effective rate of interest for the Export Development Fund (EDF) is less than 3 percent. As of today, Taka 235 billion has been financed with the EDF to the export-oriented enterprises. Around Taka 260 billion has been disbursed to the buyers’ credit sector at 6 percent interest rate. The agricultural credit disbursement target for FY 2014-15 is Taka 160 billion, of which 72 percent has been disbursed during the first nine months of current fiscal.
No more than 10 percent (9 percent in most cases) interest rate can be charged under the Bangladesh Bank refinance scheme for SMEs and women entrepreneurs; 4 percent rebate rate is applicable for the agriculture sector for cultivation of pulses, oilseeds, and spices. Bangladesh Bank has also submitted a proposal to the Ministry of Finance for providing SME loans to the dairy farms at the similar rebate rate. Taka 57 billion has been refinanced against loans to the SME sector till date. Businessmen now can avail loan facilities from foreign sources at lower rate (London Interbank Offer Rate or LIBOR plus 3 to 4 percent, which is less than 5 percent). Over the last five years, Bangladesh Bank has approved around Taka 500 billion of loans from foreign sources. These low cost EDF, buyers’ credit, agricultural credit, SME refinance, and foreign loans are significantly contributing towards reducing interest rates in the domestic financial market. Moreover, there is a rebate on accrued rate of interest for good borrowers.
Interest rate depends mainly on banks’ costs of fund, administrative costs, provision expresses, profit margins, and so on. The overall cost of fund for banks is decreasing due to rationalization of various service charges, fees, commission charges etc, avoiding high expenditure to establish bank branches, and adoption of policies towards limiting expenditure for the purchase of transport vehicles. Though banks’ onetime initial costs have increased a bit because of implementation of the information technology as instructed by Bangladesh Bank, the costs of fund are gradually falling over time.
In recent months, lending rate has not declined at the same pace as the deposit rate; however, with intensive monitoring and moral suasion from Bangladesh Bank, both the lending rate and the interest rate spread have decreased to 11.93 percent and 4.87 percent respectively.
Recently, the government has announced reduction of the interest rate on all types of National Savings Certificates by around 2 percent. As a result, the weighted average lending rate is expected to fall further in the coming days. Bangladesh Bank has been actively working towards reducing the lending rate to a rational level so as to ensure an investment friendly economic environment. At present, banks have sufficient liquidity to expand loans to the potential borrowers. Bangladesh Bank has therefore been promoting credit flows to the productive sectors at lower rates of interest through various financial inclusion activities which are contributing towards the socio-economic development along with ensuring financial and macro stability. Following flexible monetary policy, Bangladesh Bank has been continuing its strategic trend of providing necessary financial flows to the productive sectors for sustainable development. The common people and entrepreneurs are already getting the expected benefits. We hope that this trend will continue and will be extended further.
