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Bangladesh Bank has decided to remove the restriction on the interest spread between loans and deposits. In a circular issued on Wednesday, banks were notified that by determining interest rates according to market conditions, it is now feasible to curb unregulated increases in interest rates.
Utilizing the 'Smart' interest spread, banks can ascertain a maximum loan interest margin of 3.75 per cent. As of the conclusion of October last year, the 'Smart' rate stood at 7.43 per cent. As a result, customers will be entitled to an interest spread of 11.18 per cent on loans, derived from the interest earned on their deposits.
Banks must determine the interest spread, capped at a maximum margin of 2.75 per cent using Smart interest spread, for pre-shipment export loans as well as agricultural and rural loans. Within this loan category, banks are permitted to impose a maximum interest rate of 10.18 per cent, according to local newspapers.
The central bank states that it has introduced a six-month moving average rate of treasury bill (SMART) with a designated margin to calculate the interest spread to enhance the market-driven determination of interest rates since July last year. Consequently, by aligning with the liquidity scenario, it becomes feasible to uphold an equilibrium between interest recovery on loans and interest on deposits at the economic level. According to a senior official from a private bank, the easing will empower banks to set deposit interest rates according to their specific needs.
In a decision in 2018, the central bank instructed banks to maintain a 4 per cent restriction on interest spread for the distribution and recovery of loans and deposits, excluding credit cards and consumer loans. So far, banks have adhered to that decision in determining the interest spread on loans and deposits.
In 2018, the central bank instructed banks to uphold a 4 per cent limit on interest spreads for the distribution and recovery of loans and deposits, with the exception of credit cards and consumer loans.