Banks begin implementing single digit interest rate on lending

UNB file photo

Banks in the country have started implementing single digit, nine per cent, interest rate for all kinds of loans except credit cards in compliance with the government directives.

Banking industry sources said all private banks started implementing the order from Wednesday (1 April) while state-owned banks began it much earlier.

“We've started executing the Bangladesh Bank’s order from today (Wednesday) on single digit bank rate," Syed Mahbubur Rahman, managing director and CEO of the Mutual Trust Bank told news agency UNB.

He, however, said it may take this month to fully implement the new rate for all kinds of lending designated under the BB order.

The Bangladesh Bank on 24 February in a circular asked all scheduled banks to charge highest nine per cent interest for all types of lending, barring credit cards, from 1 April to help expand business and economy.

It said current high bank interest rate was affecting the small, medium and large industries of the country badly.

“Due to high interest rate, cost of doing business is escalating and industries are losing their competitiveness,” the circular noted.

According to the circular, the directives will not be applicable for classified loans.

Banks could charge a two per cent additional interest in case any borrowers enjoying the nine per cent interest became defaulters, the circular added.

It said the existing seven per cent rate on export-oriented sector would remain unchanged.

Earlier on 30 December last year, finance minister AHM Mustafa Kamal said the lending rate would be as high as nine per cent and deposit rate maximum six per cent with effect from 1 April.

He made the announcement after a meeting with bank directors and chief executives.

"We wanted to implement the single digit interest rate from 1 January. But prime minister Sheikh Hasina wants it for all loans, so we decided it should be implemented from April," Kamal said.

On 20 January, the finance ministry instructed the autonomous, semi-autonomous and state-owned companies to keep 50 per cent of their surplus funds at six per cent interest rate with private lenders and the remaining half of their deposits will go to state-owned banks, which can offer no more than six per cent interest to facilitate banks to charge nine per cent for loans from 1 April.

The central bank, however, refrained from imposing the six per cent deposit rates across the board, backtracking on its earlier decision taken in a meeting with stakeholders, including bankers, BB and the finance ministry.