SMART nears 10pc for current month

Bank lending rate surges past 13 per cent with push from rising interest benchmark called SMART or six-month moving average rate of treasuries that jumped to 9.61 per cent for March 2024.

Finding the massive leap in the SMART rate from the February count of 8.63 per cent-to businesses' worry--the central bank lowered the maximum lending-rate margin by 25 basis points.

Banking regulation and policy department (BRPD) of the Bangladesh Bank (BB) Thursday issued a circular readjusting the maximum lending- rate margin downward to 3.50 per cent from the existing 3.75 per cent.

Talking to the FE, BRPD director Shahriar Siddique said the policy rate was enhanced earlier by 50 basis points to 8.0 per cent and it is well- transmitted in the interest rates.

"As a matter of fact," he says, "the central bank has decided to cut the lending-rate margin as part of the market-adjustment move to stabilise the rates in the market."

The circular says the lending-rate margin will be 2.5 per cent instead of 2.75 per cent in case of loans for pre-shipment export and agriculture.

Seeking anonymity, a BB official said the central bank's margin-curtailing step comes soon after it finds the SMART rate jump by 98 basis points because of the growing yields on 182-day treasury bills.

"The cut is just a move to stabilise the interest rates, particularly for lending, as the cost of borrowing from the banks will go past 13 per cent from today (March 1, 2024)," the central banker added.

Under SMART regime that came into effect from this financial year (FY'24), the central banker mentions, the maximum lending rate has been calculated by the banks through adding the maximum lending-rate margin (now it is 3.50 per cent) with the SMART rate.

"If you look at the trend of SMART rate, which is growing gradually, it becomes a matter of serious concern for the business communities in recent days," he says.

With the current calculation, the maximum lending rate from banks reached 13.11 per cent. But for consumer goods, the rate will be 1.0 percentage higher to reach 14.11 per cent.

According to the BB data, SMART rate was 7.10 per cent in August 2023. The rate keeps constantly rising to 7.14 per cent, 7.20 per cent, 7.43 per cent, 8.14 per cent and 8.68 per cent in September, October, November, December, January and February respectively.

Managing Director and CEO of Mutual Trust Bank Syed Mahbubur Rahman says with the rising trend in SMART rate, the deposit rates continue increasing to cross 10.50 per cent in banks.

And the upward trend continues but banks in many cases cannot impose the maximum-rate margin. So, the NIM (net interest margin) will come under pressure now.

"I fully appreciate BB's current step. But depositors do not look at the lending-rate situation. They just look about the SMART rate, which keeps increasing," the experienced banker adds.

Managing director and CEO of Dhaka Bank Emranul Huq mentions that the cost of doing business in on the upturn in recent months, putting pressure on their cost of production.

If the upturn persists for a longer period of time, it will be harder for the business entities to absorb the pressure. If the repayment capacity of the private sector weakens, it will be a bad sign for the banks, the bank's top executive notes.

"I think the cut in lending-rate margin is a good move because we want the repayment capacity of the businesses moving in our comfort zone," the banker says.

The growing lending rate becomes a pain in the neck of businesses under the current macroeconomic situation that goes on experiencing turns and twists in the wake of global volatility.

Contacted, president of the country's apex trade body, FBCCI, Md Mahbubul Alam said the private sector had already been under immense pressure because of multiple factors, like recent tariff hikes of power and energy, ongoing dollar dearth and frequent depreciation of the local currency against the American greenback.

"If the cost of borrowing goes up further, it will be a huge burden to absorb for the entrepreneurs," the leader of the federative body of business community said.

But the FBCCI chief seeks steps from the authorities to stop the rising trend in lending rate up to June next so that the business communities get breathing space in terms of repayment.

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