Bangladesh Bank (BB), the central bank of Bangladesh, has recently issued a directive to the country’s banks, urging them to align the interest rate of pre-shipment loans with the new reference lending rate.
Reports underlined this adding this move is part of BB’s initiative to establish a more market-based approach.
The primary goal behind this measure is to bolster the resilience of export-oriented companies, safeguarding them against potential shocks arising from the ongoing global economic crisis. By doing so, the central bank aims to support these businesses and foster more efficient credit management within the banking sector.
According to the directive, banks are required to add a maximum margin of 2 per cent to the reference lending rate, also known as the SMART (six-month moving average rate of Treasury bill), while determining the interest rate for pre-shipment export credits. Pre-shipment credit refers to the financial assistance provided to exporters for covering expenses related to the purchase, processing, manufacturing, or packing of goods before they are shipped.
Back in June, the Bangladesh Bank took a significant step by introducing a market-driven lending rate applicable to both banks and non-banking financial institutions. This new rate replaced the previous lending rate cap of 9 per cent, which had been in force since April 2020.
Additionally, the circular outlines penalties for overdue loan installments. If all or partial installments of a loan are classified as overdue, a maximum penalty interest of 1.5 per cent can be imposed on the outstanding balance of a working capital loan or the installments of a demand loan that are behind schedule. This measure is likely aimed at encouraging borrowers to maintain timely repayments and ensure better credit discipline.
