Flash Report /
Bangladesh

Bangladesh: Interest rate cap to be applicable on existing loans as well

  • Bangladesh Bank clarified that all existing loan rates have to be revised down to 9%

  • The rate cap will be immediately effective for any loans taken to import few essential consumer goods

  • We expect a 100-200bps reduction in the overall spread of our coverage banks

IDLC Securities
2 March 2020
Published byIDLC Securities

The Bangladesh Bank has published another circular today, clarifying the confusion regarding the application of the interest rate cap.

The cap will be applicable for all types of unclassified loans, suggesting that all existing loan rates have to be revised down to 9%. This 9% rate cap will be effective from 1 April 2020. In addition, the rate cap will be immediately effective for any loans taken to import essential consumer goods (edible oil, chickpeas, lentils, spices, onions, peas, dates and sugar).

The interest rate cap will have a negative impact on earnings of every bank. At present, the banks in our coverage maintain an average lending rate ranging between 10-12%. After the implementation of the rate cap, all lending yield will come down to 9%, suggesting a decline in lending yield ranging between 100-300bps. The interest rate cap will also reduce the average deposit rate by 100-200 bps. Overall, we expect a 100-200bps reduction in the overall spread.

We will be publishing our full analysis on the impact of the interest rate cap by next week.