Lending rate should not go beyond 14%: BB Governor to business leaders

Bangladesh Bank Governor Abdur Rouf Talukder said the lending rate should not exceed 14%, given the current cost of funds for banks.

The governor made the comment during a meeting with leaders from seven trade bodies, including the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). FBCCI President Mahbubul Alam briefed journalists following the meeting at the central bank headquarters today (16 May).

Since July last year, banks have set their lending rates based on the Six-Month Moving Average Rate of Treasury bills (SMART) plus a 3% margin. The SMART rate has been rising, reaching nearly 14% in May.

Due to conditions set by the International Monetary Fund (IMF) to adhere to market-based rates for lending and foreign currency transactions, the Bangladesh Bank delegated the authority to set lending rates to individual banks last week. This shift has raised business concerns about the potential for increased lending rates.

"The governor assured businessmen that although banks have the authority to determine loan interest rates, an analysis of deposit costs indicates that interest rates should not exceed 14%," said Mahbubul Alam, emerging from the meeting.

Former FBCCI President Jashim Uddin, BGMEA President SM Mannan Kochi, BTMA President Mohammad Ali Khokon, and BKMEA Executive President Mohammad Hatem were also present at the meeting with the governor.

Mahbubul Alam said, "We have told the governor about the fear of investment if the loan interest rate increases due to the free-floating of the lending rate.

"The governor assured businessmen that the cost of bank deposits is up to 6-8%. Therefore, banks should not charge more than 14% interest on lending. Additionally, it will be 1% less for good borrowers, while 1% plus for weak borrowers."

He said businesses are encountering various challenges due to the repeated changes in policy decisions by the central bank. "I would say the loan that we took at 8/9% interest has now risen to 14%. This is adversely affecting our business.

"We have emphasised the need for long-term policies. The governor has assured us that policy decisions from now on will be long-term. He mentioned that they have been monitoring the exchange rate for the past few months, which has remained between Tk116 and Tk117, and will continue to stay at this rate." 

The FBCCI president said if the central bank discussed policy decisions with stakeholders like them, it would benefit both parties.

Mahbubul Alam emphasised that honest businessmen do not launder money or take money out of the country. "We stand with honest businessmen, not dishonest ones," he added.

He said, "Due to the crawling peg system, the dollar rate has increased to Tk117, and we have told the governor that traders should get the dollar at this rate. The governor informed us that banks can charge a maximum of Tk1 more or Tk1 less than this rate for opening LCs. The central bank will monitor banks to ensure that the rate does not exceed this."

Governor to businesses: The dollar crisis will end by December

The FBCCI president mentioned that the governor stated the dollar crisis is now almost over and will be completely resolved by next December. However, traders expressed concerns that some banks are still struggling to obtain dollars to settle import bills. The governor assured them that the issue would be resolved very soon.

Mahbubul Alam said, "We have informed the government that many large companies have incurred losses of Tk400-500 crore due to the increase in the exchange rate. We have requested the government to establish a separate account outside of regular bank loans for these customers and provide them with a 15-year repayment facility, including a grace period of two years."

Businessmen seek loan rescheduling with 1% down payment

They seek a special facility for all companies that became defaulters between 2020 and 2023. They demand approval from the governor for the central bank to extend the repayment period of loans over Tk100 crore to 12 years with a 1% down payment.

Traders want an increase in the single borrower exposure limit. The current limit is up to 25% of a bank's regulatory capital, but some banks have been verbally instructed by the central bank to limit it to 15%. "We have urged the governor to raise this limit to 30%," said the FBCCI president.

Businessmen demand grace period extension for overdue loans

Currently, if a customer fails to pay the loan on time, it is considered overdue after three months, as per a circular issued by the central bank on the recommendation of the IMF, effective on 30 September 2024.

Traders argue that, in the current situation, to protect the industry, the overdue period should be extended back to six months, as it was previously.

Additionally, businessmen are calling for the simplification of the loan process from the Export Support Fund. Furthermore, they are requesting an increase in the loan repayment period from 180 days to 360 days from the EDF, as well as a reduction in the interest rate of this fund from 4.50% to a maximum of 2% at the borrower level.

Bangladesh Garment Manufacturers and Exporters Association President SM Mannan said, "The world has slowed down after Covid, affecting our economy. The governor said our country's market will return to normal within two to three months."

Recently, the central bank issued a circular stating that investments cannot be made outside economic and industrial zones. "We have requested the governor to reconsider this circular, as many businesses have invested significant amounts, ranging from 40% to 80% of their capital," he explained.