Bangladesh Bank slashes penalty interest rate to 0.5pc to boost investment

Bangladesh Bank has reduced the maximum penalty interest rate on overdue loans to 0.5 per cent, aiming to boost investment and productivity amid the prevailing global economic challenges.

According to a circular issued by the Banking Regulation and Policy Department (BRPD) on Wednesday, the central bank lowered the penalty interest cap from 1.5 per cent to 0.5 per cent.

The directive, signed by BRPD Director Gazi Md Mahfuzul Islam, revises earlier guidelines issued in May 2024 on market-based interest rate determination.

Under the revised rules, banks may now charge a maximum of 0.5 per cent penalty interest on overdue loans or instalments.

For continuous or demand loans, the penalty will apply to the entire outstanding amount, while for term loans, it will apply only to the overdue instalment.

The central bank said the decision was taken in view of the “prevailing global economic situation” and the need to “increase investment and productivity”.

The new instruction takes immediate effect, the circular said.

It also clarified that all other provisions of BRPD Circular No. 10/2024 will remain unchanged, including the validity of actions already taken under the previous framework.