Highest interest rate for bank loans soars to 11.89pc

The highest interest rate for bank loans rose to 11.89 per cent on the very first day of the year, which was 11.47 per cent at the end of the last year. It came as the interest rate for government loans increased. The interest rate for bank loans for common people has been fixed based on the interest rate for government loans since last July.

The Bangladesh Bank introduced the SMART (Six Months Moving Average Rate of Treasury Bill) interest rate to initiate a market based interest rate system to meet the conditions imposed by the IMF and to control inflation. The central bank informs the rate to the banks at the beginning of every month.

The SMART interest rate was 7.10 per cent in July, which increased to 7.72 per cent in November.  It further increased to 8.14 per cent. The banks can add up to 3.75 per cent interest to SMART rates. In all, the interest now stands at 11.89 per cent in December.

Although some of the banks decided to wait before fixing the new ceiling for interest rate, they are changing their decision now as the interest rate for loans rose to almost 12 per cent from 9 per cent.

In addition to this, the banks can add up to 2.75 per cent interest to the SMART interest rate for finalising the interest rate for pre-shipment export loan and agricultural and rural loans. Apart from that, the banks can impose an additional service charge at 1 per cent rate against the SME loans.

The SMART interest rest is determined by calculating the average interest rate of treasury and bonds every six months. At the end of every month or on the first day, the BB informs other banks about the smart interest rate for the month, which applies to the new loans to be disbursed in the following month. As such, the SMART interest rate for the month of December will be in effect in January. However, the interest rate cannot be changed at the client level every month.

The banks are raising the interest rate for deposits now after the increase in the interest rate for bank loans. At the same time, some banks are collecting deposits at a high interest rate due to the liquidity crisis. They are collecting funds even at an interest rate of 12 per cent.

Meanwhile, the propensity to deposit the money saved at home to banks due to the high interest rate has increased. Still the growth of loans is higher than the deposit growth. As a result, the banks are still in the liquidity crisis.

According to the Bangladesh Bank, the amount of the money outside the banks was Tk 2,919.13 billion in June last, which came down to Tk 2459.43 billion. The overall size of bank deposits increased as the amount of the money outside the bank fell.

The overall size of bank deposits was Tk 15,952.54 billion in June, which rose to 16,365.92 billion taka in the month of October.

The total size of bank loans were Tk 15,704.39 billion in June, which rose to Tk 16,014.35 billion in October last.