Bangladesh Bank (BB) has decided to increase the credit interest rate to tackle the ongoing pressure of inflation which might come into effect from the first day of the next year.

Bankers have welcomed the decision. According to the central bank, at first, the interest rate of SME loans (Small and Medium-sized enterprises) will be increased and later it will be effective for all kinds of loans including current capital loans and closed-end industrial credit.  

According to the data, at present banks across the country are collecting deposits with a 7.5 per cent interest rate. But these are distributing loans at the rate of 9 per cent. As a result, banks can’t take a profit after operating costs. Besides, there is immense pressure from the International Monetary Fund (IMF) to withdraw the limit of the interest rate. Considering this situation, the central bank decided to withdraw the credit rate. On the other hand, the deposit rate will also increase after the withdrawal of the credit interest rate.   

In October last, the central bank approved the banks to increase consumer credit interest rates as part of the implementation of the first initiative to increase credit interest rates through market management. At present, banks are distributing consumer loans with up to 12 per cent interest.

Wishing anonymity, a high official of the Bangladesh Bank told that a decision was taken at a recently held meeting to withdraw the highest limit of all kinds of loans. BB has already directed private commercial banks to increase the credit rate of consumer loans. It has the plan to withdraw credit interest rates gradually from the first day of the new year.  

He also said the commercial banks have increased the deposit rate due to the pressure of ongoing inflation. It has increased the pressure on the difference between deposit and credit interest rates (Spread). As a result, the profit of the banks has decreased. For this reason, Bangladesh Bank is planning to withdraw the credit interest rate. 

Welcoming the decision taken by the central bank, Mutual Trust Bank Limited Managing Director and CEO Syed Mahbubur Rahman said, “I think, if we want a sustainable banking system, then we should increase the net interest rate. For this, the maximum credit interest limit of 9 per cent should be withdrawn. It has no alternative.”

On April 1, 2020, Bangladesh Bank issued a circular fixing the lowest deposit interest rate at 6 per cent while the maximum rate for all kinds of credits is up to 9 per cent.

@ The article was published on print and online versions of The Bangladesh Pratidin on December 3, 2022 and has been rewritten in English by Golam Rosul.