Regulatory Alerts2023-11-29
Added
BRPD Circular Letter No. 67: Regarding Intermediation Spread Limit for Rationalization of Advance and Deposit
The Bangladesh Bank Banking Regulation and Policy Department (BRPD) withdraws the mandatory 4% spread limit between the weighted average interest rates of loans and deposits, which was previously established in Circular Letters No. 09 (dated May 30, 2018) and No. 11 (dated June 12, 2018). This directive applies to all scheduled banks operating in Bangladesh. The withdrawal is necessitated by the implementation of market-based interest rates for loans, which allows for the rationalization of interest rates across all sectors without the need for a fixed spread cap, although banks remain required to continue submitting regular reports on the spread between weighted average loan and deposit interest rates.
Bangladesh Bank Chief Executive Office Motijheel, Dhaka-1000 Bangladesh Ref No.: BRPD-BPD-Pol-67 Banking Regulation and Policy Department November 29, 2023
BRPD Circular Letter No. 67 Date: ------------------- 14 Agrahayan 1430
Managing Director / Chief Executive Officer All Scheduled Banks Operating in Bangladesh
Dear Sir,
Reference is drawn to your attention regarding the BRPD Circular Letter No. 09; Date: 30 May 2018 and BRPD Circular Letter No. 11; Date: 12 June 2018, concerning the determination of the spread or intermediation spread between the weighted average interest rates of loans and deposits for the rationalization of combined interest rates on deposits and loans.
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Through the aforementioned circular letters, you were instructed to limit the spread or intermediation spread between the weighted average interest rates of loans and deposits, excluding credit cards and consumer loans, to within 4%, with the objective of determining combined interest rates on loans in various sectors including the productive sector. Through BRPD Circular No. 09; Date: 19 June 2023, with effect from July 01, 2023, the system for determining interest rates has been implemented by adding a margin to the benchmark rate (Prime Lending Rate or Base Rate) to make loan interest rates market-based. Through the implementation of the new interest rate determination system, it has become possible to prevent sudden fluctuations and uncontrolled increases in interest rates due to market-based loan interest rates. Consequently, it is now possible to maintain combined interest rates on loans in all sectors, including the productive sector. Considering the current situation, it is not necessary to determine a limit for the intermediation spread.
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Now, to ensure efficient loan management, considering the implementation of the mandatory spread limit objective in the context of the market-based interest rate system for distributed loans by banks, the instructions provided through BRPD Circular Letter No. 09; Date: 30 May 2018 and BRPD Circular Letter No. 11; Date: 12 June 2018, regarding the spread or intermediation spread between the weighted average interest rates of loans and deposits, along with all instructions distributed through all related circulars/circular letters, are hereby withdrawn. However, reports regarding the spread between the weighted average interest rates of loans and deposits by banks will continue to be submitted regularly.
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This instruction is issued under the powers conferred by Section 29(2)(c) and Section 45 of the Companies Act, 1991.
Yours faithfully,
(Mohammad Shahriar Siddique) Director (BRPD) Phone: 9530252