Bank loan interest rate surges past 13.5pc

Bangladesh BankFile photo

Bank loan interest rate has increased to more than 13.5 per cent, which will be implemented from Monday and will remain in effect for April. This will be the highest interest rate on loans since July last year.

Bangladesh Bank is now following a new method of determining interest rates. As a result, the loan interest is now increasing every month. The highest interest rate on bank loans was 12.43 per cent in February which increased to 13.11 per cent in March.

Earlier, the highest rate of interest was 9 per cent. But the central bank backtracked from the earlier position of determining a fixed interest rate.

Currently, the interest rate on loans is fixed following the six months moving average rate of treasury bill (SMART) method. Earlier, an additional 3.5 per cent interest was added to this base rate, but this time Bangladesh Bank has asked to add 3 per cent interest. Banks determine the final interest rate of the loan by combining the base rate and the additional interest.

At the end of March, the smart rate increased to 10.55 per cent. The interest on the loan stands at 13.055 per cent after adding 3 per cent interest to this.

Traders said that the interest rates on loans are now increasing every month as the central bank follows the new policy, creating trouble for the borrowers, businesspersons, and industrialists as they need to pay more interest. As a result, the cost of business is also increasing, they added.

In April 2020, Bangladesh Bank fixed the maximum interest rate on bank loans at 9 per cent. However, when the crisis started in the economy, the central bank introduced a new SMART method to determine the interest rate of bank loans from June last year. Bangladesh Bank publishes the SMART interest rate at the beginning of every month.

At the end of last January, the SMART rate was increased to 8.68 per cent which further increased to 9.61 per cent in February.

Bankers said that after the withdrawal of the much-discussed and criticised “9-6 interest rate”, the loan interest rate has now reached the highest level.

The maximum interest rate on bank loans was fixed at 9 per cent, and the maximum interest rate on deposits was 6 per cent. In addition to the increase in loan interest rates, the interest rates on deposits in banks and financial institutions have also increased.

Correction: Bangladesh Bank has decided to add an additional 3 per cent interest to the base interest rate, bringing the loan interest rate to 13.55 per cent for April. That is why the information in the report has been corrected.