The Bangladesh Bank has released new guidelines for the repayment of home building and industrial term loans in accordance with the new market-based approach to determining bank loan interest rates.
In an effort to fully market-based interest rates, the central bank eliminated on May 8 of this year the prior formula, which was based on the Six-month Moving Average Rate of Treasury bills, or SMART.
A central bank circular states that due to the unfavorable state of the world economy and the new way that interest on bank loans is calculated, the interest rate has risen above the fixed rate that was in place before to July 1, 2023.
Since the amount of each installment has grown, this rate hike has caused difficulties for borrowers.
To sustain the trend of industrialization and export, it is necessary to reschedule the number of installments without raising the repayment amount. According to BB, this would also increase the ability of borrowers with low incomes to service their debt.
Relationships between banks and their clients, the demand for loans, and the availability of loanable capital currently determine the market-based interest rate.
Extending the time frame for instalment collection is one of the central bank’s directives concerning the collection of loans disbursed prior to July 1, 2023, in order to prevent recovered loans from being included in debt restructuring.
When a loan is taken out against an employee’s salary, the bank has the discretion to determine whether or not to repay the debt before the customer’s employment ends.
Additionally, as of March 31 of this year, loans that were not classified will likewise be restructured; however, this will not apply to converted term loans.
The loans that will not be covered by this program, such as those made through incentive packages or unique funds established by the government or BB, were also made clear by the central bank’s directive.
The rescheduling facility is available to eligible borrowers upon written application, which must be received before it can be granted. The central bank emphasized the importance of this information.
