Bank-Insurance
Cenbank Announces April Interest Rates Based on SMART System
Cenbank Bangladesh Bank has announced the interest rate on bank loans for April based on the ‘Six-Month Moving Average Rate of Treasury Bills’ (SMART) system.
The Banking Regulation and Policy Department of Bangladesh Bank (BB) issued a circular in this regard on Sunday.
In March, the SMART increased by almost 1 percent to 10.55 percent, up from 9.61 percent in February and 8.68 percent in January.
The stock markets ended on a high note Sunday amid price increases.
Banks will be permitted to add a maximum of 3.0 percent to the SMART number when signing loan agreements in April, down from 3.5 percent in March.
As a result, the maximum interest rate on bank loans will be 13.55 percent in April, while the maximum interest rate on consumer loans will be 14.55 percent, as banks can charge a 1.0 percent supervision fee for consumer loans.
In March, the interest rate on bank loans was 13.11 percent, while it stood at 14.11 percent for consumer loans. In February, the rates were 12.43 percent and 13.43 percent, respectively. In January, the rates were 11.89 percent and 12.89 percent.
As the SMART rate increased more than expected in March, Bangladesh Bank reduced the ‘SMART’ margin rate that banks are allowed to add by 0.50 percent in the interest of consistency with the monetary policy. The BB had previously cut the margin by 0.25 percent in February.
According to the new guidelines, the margin added for pre-shipment export loans and agricultural and rural loans will be a maximum of 2.0 percent in April, down from 2.50 percent in March.
Loans taken from banks for purchasing personal and consumer goods such as car loans, housing loans, and education loans, including refrigerators, TVs, and computers, are generally considered consumer loans.
Dr. Ahsan H. Mansur, Executive Director of the Policy Research Institute, commented to UNB that the central bank has no choice but to increase interest rates to control inflation.
He explained, “The interest rate hikes will continue until the inflation rate comes down to 5-6 percent. Only then will the interest rate stabilize.”
During this period, industries and personal borrowers will face challenges, but they must confront reality. Through this adversity, the economy will gain strength and stability.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
