The Bangladesh Bank on Wednesday scrapped its SMART rate policy of determining lending rate and shifted to the market-based approach amid International Monetary Fund鈥檚 pressures.
The BB issued a circular in this regard on the day, having an immediate effect.
The IMF, under $4.7 billion loan programme, had been asking the Bangladesh Bank to go for market-based interest rate determination system, but the central bank had delayed to do the same amid strong business-sector lobbying.
The BB had imposed 9 per cent ceiling on lending rate in April 2020.
On June 18, 2023, the BB in its monetary policy statement adopted new interest rate system introducing the six-month moving average interest rate of 182-day treasury bill (SMART), which was controlled as it allowed to move the interest rate at certain rate.
But the IMF was not happy with the decision.
Therefore, the BB has now decided to completely switch to a market-based interest rate determination system for loan interest rate improvement.
Accordingly, the interest rate determination will be based on the relationship between the bank and its customers, considering the demand for loans and the bank鈥檚 deposit position.
The circular said that banks would declare the sector-based interest rate for loans and might provide loans at a rate that is 1 per cent lower or higher than the declared rate, depending on comparative risk assessment.
The loan approval letter must mention whether the interest rate for the loan is set or variable.
If the interest rate is variable, it must specify the maximum number of times the rate can be increased in a year and the percentage by which it can be increased, it said.
If a loan or instalment is marked as fully or partially overdue, a penalty interest of up to 1.5 per cent on the outstanding loan balance or the overdue instalment of the term loan, respectively, may be imposed.
No additional service charge will be imposed by the bank for the declared interest rate.
Policies applicable to incentive package/special funds/restructuring or pre-financing funds created by the Bangladesh Bank or the government for the interest rate determination of loans provided under the respective funds will be followed.
In accordance with the BRPD circular issued on January 25, 2012, the interest rate details declared in a given month must be uploaded to the enterprise data warehouse through the web portal by the 7th of that month.
Islamic Sharia-based banks will take necessary measures to determine the profit rate for their provided investments following the directives, it said.