Bangladesh Bank hikes interest rate on deposit, loan of financial institutions

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Bangladesh Bank on Tuesday announced the interest rate on deposits and loans of the financial institutions.

As per new rate, financial institutions will receive deposits with a maximum interest rate of 9.13 per cent and provide loans or make investment with a maximum interest rate of 12.13 per cent.

Besides, an additional 1 per cent supervision fee for personal and car loans, both of which fall under CMSME (credit to micro, small and medium enterprises) and consumer loans can be added to it, meaning the rate will be a maximum of 13.13 per cent.

Bangladesh Bank issued a circular to this end and sent it to the directors of the financial institutions.

The circular states new instructions will come into effect on 1 July.

A reference rate will be fixed on the average yields of 182-day treasury bills (TBs), known as the "SMART" (six months moving average rate of treasury bill), and interest on deposits will be no more than SMART plus 2 per cent while interest on lending will be no more than SMART plus 5 per cent, it added.

The central bank has published a reference rate in its website, which is 7.13 per cent. Currently, financial institutions can give maximum 7 per cent interest on deposit and receive maximum 11 per cent interest on lending.

There will be no change in interest rate for the next six months since the rate comes into effect, according to the circular.

For banks, Bangladesh Bank only set lending rate, but the central bank fixed interest rate on deposits and loans for financial institutions. Central bank officials said many weak financial institutions take deposits with higher interest rate and provide loans with low interest rate despite risk. That is why interest rate on both deposit and lending was fixed.

Bangladesh Bank set an interest cap of 9 per cent on lending for banks in April 2020 and an interest celling of 7 and 11 per cent on deposits and loans for financial institutions in July 2022.

Currently, there are 24 financial institutes in Bangladesh. As 10 of them face crisis, they cannot return the depositors’ money timely.