The Bangladesh Bank has taken an initiative to scrap the 9% interest rate ceiling and introduce a market-based interest rate on loans, said its governor Abdur Rouf Talukder.
"We are working on the development of a market-based reference rate. On top of that, we will be giving a corridor for the lending rates," he also said, on the second day of the Bangladesh Business Summit.
The Federation of the Bangladesh Chambers of Commerce and Industry organized the three-day event in cooperation with the foreign and commerce ministries and the Bangladesh Investment Development Authority.
The BB has maintained the ceiling since April 2020.
In January, it relaxed the lending rate cap for consumer loans, allowing banks to hike it up to 3 percentage points.
Citing the central bank's efforts at restoring discipline in the forex market, Talukder said that the central bank was trying to keep the exchange rate stable.
Bangladesh's foreign exchange market has been under pressure for nearly a year owing to the fast-depletion of the foreign currency reserves amid escalated import bills.
The reserves have slipped to a six-year low of $31.15 billion last week, down 30% from $44.14 billion recorded in March last year.
Amid the shortage of the American greenback, the taka has lost its value by about 25% in the past one year.
"We will also eliminate multiple rates of the US dollar. We are close to implementing that. You will shortly see a market-based exchange rate regime."
Currently, the US dollar trades at different rates for exporters, importers and remitters.
The governor said that the central bank has taken several measures to contain higher inflation, which has stayed at an elevated level for the higher global commodity prices.
"Our policy is to reduce the growth of aggregate demand while making supply-side interventions. This means the central bank will finance the supply-side initiatives," Talukder said.
Speaking at the discussion, Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh, a platform for managing directors of banks in Bangladesh, described non-performing loans (NPLs) as cancer.
"If you can't cure it within the shortest possible time, you will die. And there is no other conclusion. A bank should be very careful about NPLs," said the managing director of Eastern Bank.
"If you look at the balance sheet of any bank, you will see that it earns a lot of money. But it also loses money because of the defaulted loans."
"If we don't have good governance at banks, you will face a high level of NPLs. You can't stop it. The role of the board and the management should be clearly and distinctly divided. The roles are different but the goal should be the same," Iftekhar said.
Arif Khan, vice-chairman of Shanta Asset Management Ltd, said: "Bank deposits are mainly short-term. So, a severe asset-liability mismatch takes place when long-term loans are provided based on those deposits."
