Borrowing costs to surge above 13.5% as Cenbank hikes reference rate again
The highest lending rate offered by banks was 13.11% in March
Borrowing costs in the country are set to rise even further as banks now have to adjust their lending rates to reflect a surge in the Six-Month Moving Average Rate of Treasury Bills (SMART).
The Bangladesh Bank yesterday hiked the SMART, a key reference rate for lending, for April to 10.55%, marking a significant increase from 9.61% in March, amid liquidity crisis. The benchmark rate serves as the reference point for determining the maximum interest rate banks can charge on loans.
The central bank said in addition to the benchmark rate, banks can charge up to 3% interest, taking the total lending rate to 13.55%. The margin was 3.5% last month.
If not for the central bank's decision to trim 50 basis points from the 3.5% margin that banks are permitted to add to the SMART, lending rates could have crossed the 14% mark.
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Despite the adjustment, the highest lending rate offered by banks remained at 13.55% for April, up from 13.11% in March.
"The interest rate of bank loans is increasing day by day. As a result, industries struggle to survive."
However, in the case of consumer loans the lending rate will be 14.55% as banks can add up to 4% interest to the benchmark rate.
Following a lending rate cap of 9% enforced for over three years, the central bank has been utilising SMART as the basis for determining the highest allowable interest rates on loans since July of the previous year.
Businesses concerned
Businesses have expressed concerns about the central bank's new method for determining loan interest rates. They warn that the system leads to monthly increases in borrowing costs, putting a strain on borrowers like businesses and industrialists.
Bangladesh Chamber of Industries President Anwar-ul Alam Chowdhury (Parvez) told TBS, "The interest rate of bank loans is increasing day by day. As a result, industries struggle to survive."
Wishing not to be named, another businessman, who took a Tk200 crore loan to set up a factory in 2022, said he is now struggling to repay the instalments because of the rising interest rates.
Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque said the SMART is increasing due to the increase in the interest rate of Treasury bill bonds. "It is determined by auction. Hence, the latest SMART rose to 10.55% as a six-month average. On the other hand, we have kept the margin rate in line with the market."
He went on to say, "Last month, the margin rate was 3.5% but it has been brought down to 3% now. Through this, we are trying to keep the interest rate at the targeted level."
