Bangladesh Bank (BB) issued a circular to all scheduled commercial banks outlining new guidelines to cap interest rates on term loans on Tuesday, it has become effective immediately. The circular aims to enhance market efficiency and ensure affordable financing for businesses and individuals.
The BBs decision follows the circular of May 8, which has introduced several measures to improve banking operations. The new guidelines are part of the broader strategy to stabilize the financial market and improve loan accessibility.
The guidelines mandate that banks should not exceed a specific interest rate for term loans issued before July 1, 2023. The cap applies to both industrial term loans and home financing. The objective is to make borrowing more affordable and predictable for borrowers.
From August 1, 2023, onwards, the interest rates for various categories of term loans should adhere to predetermined caps set by Bangladesh Bank. Banks are required to submit regular reports on their compliance with these caps. The cap also applies to any loans that were restructured or rescheduled before the implementation of these guidelines.
Furthermore, banks must follow specific procedures for approving and disbursing loans to ensure that they adhere to the new interest rate caps. The guidelines emphasize that loans with interest rates above the cap must be renegotiated to meet the new requirements. This includes loans issued before March 31, 2023, where banks should adjust the rates to comply with the new guidelines.
Bangladesh Bank has also clarified that no additional fees should be charged for term loans exceeding the interest rate cap.
This measure is to prevent banks from circumventing the cap through hidden charges. Banks must also ensure that the benefits of the reduced interest rates are passed on to borrowers without any delay.
For Islamic banks, the guidelines include provisions to ensure that their lending practices align with the new interest rate caps. These banks must follow the central banks instructions to provide financing at the stipulated rates.
The circular, invalidates the instructions provided in BRPD Circular No-17 dated June 8, 2024. Banks are instructed to comply with these new guidelines under the authority of Section 45 of the Bank Company Act, 1991.
With these new measures, Bangladesh Bank aims to provide a stable and predictable lending environment that benefits both borrowers and the broader economy, the circular said.
