The Bangladesh Bank has set interest rates on deposit collection at 7% and loans at 11% for the country's non-banking financial institutions (NBFI).
These interest rates will be effective from 1 July this year, according to a Bangladesh Bank circular issued to the commercial banks' chief executives and managing directors on Monday.
The circular said recently it has been observed that some financial institutions are collecting deposits at high interest rates without complying with the existing market rates in terms of deposit collection and disbursement of loans.
As a result, the cost of funds of the institutions is increasing unreasonably, which has resulted in disbursement of loans at high interest rates.
Consequently, the borrowers are failing to repay loans on time and the amount of defaulted loans is increasing, which is having a negative impact on the economy as a whole, including production.
The circular further said from 1 July 2022, interest rates on any types of deposits and loans cannot exceed the prescribed rates. However, the interest rate on deposits taken by the customers earlier will remain the same till the term of those debts expire.
The central bank at its 420th board meeting on 17 March this year took a decision in principle to rationalize the interest rates on deposits and loans of financial institutions, but the formal directive regarding the actual rate came a month later on Monday.
Earlier, from April 2020, the Bangladesh Bank fixed the interest rate on all types of loans, except the credit cards, at 9%.
At the same time, in August last year, the central bank imposed a condition that the interest rate on term deposits should not be less than the average inflation rate. As a result, the minimum interest rate on deposits was set at 6%.
