Flash Report /

Bangladesh enters interest rate cap regime

    IDLC Securities
    24 February 2020
    Published byIDLC Securities

    The Bangladesh Bank (BB) issued a circular to cap interest rate at 9% for all loans except for credit card loans. This 9% rate cap will be effective from 1 April 2020.

    Key points of the circular include:

    • Maximum 9% interest rate for any type of loan except for credit card loans.
    • Penalty for default loan is maximum 2% on the due installment for the term loan and a maximum 2% penalty on the total due amount for working capital loan.
    • The pre-shipment export loan rate will be unchanged at 7%.
    • Other than the above rates, banks cannot demand any additional interest, penalty or charge.
    • The portion of SME manufacturing and industrial loans outstanding in the total loans outstanding at the end of the year cannot be lower than the last three years' average number.

    Though the government had mentioned the intention to cap interest rates earlier, the circular is still a surprise since we expected the SME loan to be out of the scope of the rate cap. Despite feedback and requests from the Banker Association and economists, the Bangladesh Bank has included SME loans in the cap.

    Note that the circular does not clarify whether this rule is applicable for existing loans or not.