SMART-based lending rates: Is it a smart move? | The Business Standard
Skip to main content
  • Epaper
  • Economy
    • Aviation
    • Banking
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • Videos
    • TBS Today
    • TBS Stories
    • TBS World
    • News of the day
    • TBS Programs
    • Podcast
    • Editor's Pick
  • World+Biz
  • Features
    • Panorama
    • The Big Picture
    • Pursuit
    • Habitat
    • Thoughts
    • Splash
    • Mode
    • Tech
    • Explorer
    • Brands
    • In Focus
    • Book Review
    • Earth
    • Food
    • Luxury
    • Wheels
  • Subscribe
    • Epaper
    • GOVT. Ad
  • More
    • Sports
    • TBS Graduates
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • Gallery
    • Long Read
    • Interviews
    • Offbeat
    • Magazine
    • Climate Change
    • Health
    • Cartoons
  • বাংলা
The Business Standard

Wednesday
May 14, 2025

Sign In
Subscribe
  • Epaper
  • Economy
    • Aviation
    • Banking
    • Bazaar
    • Budget
    • Industry
    • NBR
    • RMG
    • Corporates
  • Stocks
  • Analysis
  • Videos
    • TBS Today
    • TBS Stories
    • TBS World
    • News of the day
    • TBS Programs
    • Podcast
    • Editor's Pick
  • World+Biz
  • Features
    • Panorama
    • The Big Picture
    • Pursuit
    • Habitat
    • Thoughts
    • Splash
    • Mode
    • Tech
    • Explorer
    • Brands
    • In Focus
    • Book Review
    • Earth
    • Food
    • Luxury
    • Wheels
  • Subscribe
    • Epaper
    • GOVT. Ad
  • More
    • Sports
    • TBS Graduates
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • Gallery
    • Long Read
    • Interviews
    • Offbeat
    • Magazine
    • Climate Change
    • Health
    • Cartoons
  • বাংলা
WEDNESDAY, MAY 14, 2025
SMART-based lending rates: Is it a smart move?

Thoughts

Bithe Rani Aich
09 January, 2024, 01:45 pm
Last modified: 10 January, 2024, 01:58 pm

Related News

  • BB moves for managed floating exchange rate to get IMF loan
  • State to take over if any weak bank fails to turn around: BB governor
  • Bangladesh to get $3.5 billion in loans by June: BB governor
  • BB resolves exchange rate dispute with IMF, expects next tranche in June
  • IMF agrees to release $1.3b in June for Bangladesh as disagreement over exchange rate flexibility resolved

SMART-based lending rates: Is it a smart move?

Bangladesh Bank's adoption of the SMART lending rate marks a strategic shift from a lending rate cap. The move, which aims to balance inflation and provide flexibility to commercial banks, brings forth both opportunities and hurdles

Bithe Rani Aich
09 January, 2024, 01:45 pm
Last modified: 10 January, 2024, 01:58 pm
Illustration: TBS
Illustration: TBS

A smart economy with inclusive growth is a precondition for implementing the 'Smart Bangladesh' initiative and a proactive banking sector can navigate an economy smartly. 

Bangladesh Bank has chosen SMART as the basis for the lending rate of the banking sector, with the aim to make the sector capable enough to sustain Bangladesh's emerging economy. However, all market participants, such as lenders, borrowers, and depositors, might not be ready yet to be smart at SMART-based lending rate.

SMART is an acronym for the Six-Month Moving Average Rate of Treasury Bill, which has been since July 2023 to set the final lending rate of banks. Bangladesh Bank uploads the SMART on its website on the first working day of each month, by calculating the average of the last six months of Treasury bill (T-Bill) discount rates. 

Banks are instructed to add a margin with SMART to fix the lending rate, considering the ongoing economic instability. Before that, banks had been guided to use a cap on the lending rate of 9.0% for loan pricing, considering the economic conditions derived from the effect of the Covid-19 pandemic from 2020, to the first half of 2023.

The Business Standard Google News Keep updated, follow The Business Standard's Google news channel

Changing that rate was a necessary decision, as the Bangladesh economy is going through a startling rise in inflation. However, it seems the whole banking sector of Bangladesh is going through a challenge with the imposition of SMART on lending rates. 

Undoubtedly, the banking sector plays a significant role in Bangladesh's economic development, especially by providing investible funds to both the public and private sectors, most of which come from public deposits.

Borrowing funds for depositors became quite tricky at 6%, as the inflation rate was already 9.74% in June 2023 and 9.93% in November 2023. Although it has been targetted that the inflation level will come down to 6% within FY 2023–24, it seems very difficult at this point. 

Bangladesh Bank has gradually increased the repo rate to address rising inflation. Thus, banks are being compelled to move away from the single-digit (6 and 9%) concept to settle their cost of funds and overhead, and overcome the damages to banking profitability from the prolonged period of low-interest rates.

SMART varies over time. SMART was 7.1% at the very beginning of July 2023, 7.72 in December 2023. 

Along with SMART, a margin of 3% was added to finalise the loan pricing of banks, at the start. After that, Bangladesh Bank decided to move up the margin to 3.5% from October 2023, aligning with its decision to increase the policy rate to 7.25% from 6.5%, to curb skyrocketing inflation.

Although financial participants initially welcomed the move, few arguments have been raised over this period, and the financial market is on the fence now. On the one hand, all borrowers are not ready to accept the high rate; on the other hand, the T-bill rate may go up greatly due to the higher demand for short-term funds.

Furthermore, each month, the variation in lending rate has gone beyond acceptance in some cases; like loan disbursement to the Cottage, Micro, Small, and Medium Industries (CMSME) sector.

My take on this issue is that the challenges in the short run can be handled. SMART will help impede inflation by bringing the money supply down slightly, as it discourages businesses from borrowing money and investing indecisively. 

Furthermore, the process of selecting loan prices is more market-driven, as SMART is based on actual market conditions. In line with that, the money market will be practical as commercial banks are getting more flexibility in setting their lending rates and avoiding risky investments.

To maintain a balanced spread between the lending rate and the borrowing rate to generate reasonable profitability for banks, it is expected SMART will play a role in reining in the gap, as it reflects the true cost of funds. 

On the other hand, the interest rate cap resulted in lower returns, as low as 6%, for which depositors tended to be demotivated to credit their money to banks. As a result, the banking sector was suffering from a loanable fund crisis, particularly in the severe inflation scenario. 

Withdrawal of interest rate cap restrictions and synthesis with SMART for loan pricing will support the sector in overcoming the crisis in the long run, as well as help the economy to boost up.

Overall, the lending rate based on the semiannual weighted average discount rate of T-bills is a pivotal step towards fostering a more robust and sustainable financial system, which is also a sign of market efficiency. 

By emphasising transparency and responsiveness in the financial system, it is expected lending costs will be reduced, the availability of credit will be ensured, risks managed, and will have a positive impact on the Bangladeshi economy as a whole. 


Sketch: TBS
Sketch: TBS

Blithe Rani Aich is a research associate at the Bangladesh Institute of Governance and Management (BIGM). 


Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.

lending rate / Bangladesh Bank

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • Bangladesh Bank Governor Ahsan H Mansur. TBS Sketch
    Bangladesh to get $3.5 billion in loans by June: BB governor
  • Photos: Collected
    BB moves for managed floating exchange rate to get IMF loan
  • Police fired tear gas, sound grenades to disperse a long march by Jagannath University (JnU) students and teachers heading towards the chief adviser’s residence in Jamuna today (14 May). Screengrab
    JnU's 'March to Jamuna': 25 injured as police fire tear gas, lob sound grenades on students, teachers

MOST VIEWED

  • Representational image. File Photo: UNB
    Army updates contact numbers for people seeking help across Dhaka, surrounding districts
  • Logo of bkash. Photo: Collected
    bKash posts Tk132cr profit in three months
  • IMF agrees to release $1.3b in June for Bangladesh as disagreement over exchange rate flexibility resolved
    IMF agrees to release $1.3b in June for Bangladesh as disagreement over exchange rate flexibility resolved
  • Collage shows [from left] shows the woman rushing to her house with the cat after, getting into the lift and the cat that was beaten. Collage: TBS
    Animal abuse outrages citizens: Grameenphone condemns incident allegedly involving employee
  • Photo: Screenshot
    Businessman shot in Gulshan after reportedly refusing to pay extortion
  • Walton expands footprint in Sri Lanka
    Walton expands footprint in Sri Lanka

Related News

  • BB moves for managed floating exchange rate to get IMF loan
  • State to take over if any weak bank fails to turn around: BB governor
  • Bangladesh to get $3.5 billion in loans by June: BB governor
  • BB resolves exchange rate dispute with IMF, expects next tranche in June
  • IMF agrees to release $1.3b in June for Bangladesh as disagreement over exchange rate flexibility resolved

Features

Sketch: TBS

‘National University is now focusing on technical and language education’

19h | Pursuit
Illustration: TBS

How to crack the code to get into multinational companies

21h | Pursuit
More than 100 trucks of pineapples are sold from Madhupur every day, each carrying 3,000 to 10,000 pineapples. Photo: TBS

The bitter aftertaste of Madhupur's sweet pineapples

21h | Panorama
Stryker was released three months ago, with an exclusive deal with Foodpanda. Photo: Courtesy

Steve Long’s journey from German YouTuber to Bangladeshi entrepreneur

1d | Panorama

More Videos from TBS

BB resolves exchange rate dispute with IMF, expects next tranche in June

BB resolves exchange rate dispute with IMF, expects next tranche in June

39m | TBS Insight
What did Dr. Yunus say at the convocation of Chittagong University?

What did Dr. Yunus say at the convocation of Chittagong University?

39m | TBS Today
Brain gain, not brain drain - New plan to attract talent to Europe

Brain gain, not brain drain - New plan to attract talent to Europe

2h | Others
How Norwegian citizens want to contribute to solving global problems

How Norwegian citizens want to contribute to solving global problems

1h | TBS World
EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Advertisement
  • Privacy Policy
  • Comment Policy
Copyright © 2025
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net