Bangladesh Bank Headquarters

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has taken a number of initiatives to rein in the rising trend of interest rates on lending that is creating unwanted pressure on borrowers and businesses.

Under the latest measures, banks will not be able to change the interest rate on loans if the credit agreement mentions fixed interest rate.

The interest rate can be changed if the loan agreement states floating or flexible rates. But no bank will be permitted to increase the flexible lending rate more than once a year.

Besides, banks will have to give notice to borrowers at least three months before increasing the lending rate. They can increase the rate by a maximum of 0.05 per cent for term loans and 1.0 percent for working capital and other loans in a year.

On the other hand, the central bank has also asked the banks to bring down the interest rate spread at 4.0 per cent from the existing level.

The Bangladesh Bank (BB) expressed concern over the recent trend of ‘illogical’ rise in lending rates.

“In recent times, interest rates on different types of credit are being increased irrationally, which is a matter of concern,” said the BB in a circular, issued on Wednesday.

It also said: “To keep interest rates on credit for different sectors excepting credit cards and consumer loans at rational levels, banks are advised to keep the intermediation spread within 4.0 per cent.”

Earlier, the BB’s Banking Regulation and Policy Department (BRPD) issued a couple of circulars on November 15 and December 14 in 2015.

It asked the banks to keep the intermediation spread within the “lower single digit” at 5.0 per cent.

The BB’s latest instruction has come in the wake of a slight rise in the intermediation spread of the banks to 4.40 per cent in March from 4.37 per cent in February.

On the other hand, the weighted average interest on lending rose to 9.70 per cent in March compared to 9.55 per cent in February 2018. The BB data showed.