The lending cap for banks is set to be withdrawn as Bangladesh Bank has finally decided to undo the initiative to raise bankers' profitability.
Bankers have said that inflationary pressure on their earnings was eroding their operating profit margins within two fixed interest brackets: rates on loans given by banks and on deposits they take from people.
Instead of the lending-rate capping at 9% which was imposed in April 2020, the central bank will fix a market-based reference rate under the interest rate-corridor mechanism for the banks to fix the lending rate based on the benchmark rate, central bank sources said.
The decision came from the 58th meeting of the monetary policy committee, held at the BB headquarters with BB governor Abdur Rouf Talukder presiding, which also decided on calculating forex reserves as per IMF arithmetic.
The meeting also made two more important decisions: starting a monetary policy modernization framework under which the interest rate policy corridor will be made, and calculation of forex reserves in accordance with the sixth edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6).
And the decisions will be reflected in the upcoming half-yearly monetary policy statement (MPS) that will be announced in the third week of June 2023, the BB sources said.
Under the latest decision, the existing lending-rate cap will be withdrawn and the BB will set a market-based reference rate for banks to fix the lending rates based on the reference rate, according to the BB official.
Also, the central bank will release reserve data based on the calculation formula of the 6th version of the BPM alongside the existing data.
It means the BB will have to exclude the EDF (export development fund) figure, reserve liabilities, deposits with the state banks from the country's gross reserve figure, which was $31.204 billion as on March 16, 2023.
Bankers and economists welcomed the decisions, saying that it would give respite to the banks which saw drastic fall in their profitability mainly due to the lending cap.