Regulatory Alerts2018-05-30
Added · Updated
BRPD Circular No. 05: Avoidance of the increasing trend of rate of interest on existing loan accounts
BRPD Circular No. 05 prohibits scheduled banks in Bangladesh from increasing interest rates on existing loan accounts unless the loan sanction letter explicitly permits variable rates. For loans with variable rates, increases are capped at once per year, require a minimum three-month prior notice to the customer, and are limited to a maximum of 0.50 percent per adjustment for term loans and 1.00 percent for working capital and other loans. These directives are effective immediately and do not apply to new loan approvals, which remain subject to previous BRPD circulars.
Ref: BRPD-Reg-Policy-05 Banking Regulation and Policy Department Bangladesh Bank Head Office Dhaka. 16 Jyestha, 1425 BRPD Circular No. 05 Date: ----------------- 30 May, 2018
To, Managing Director/Chief Executive Officer All Scheduled Banks operating in Bangladesh.
Dear Sir,
Regarding the avoidance of the increasing trend of the rate of interest on existing loan accounts.
In light of the recent increase in interest rates in the international and local financial markets, some instances have been observed recently where existing bank loan accounts, in addition to new loan approvals, have been subjected to sudden and unjustified higher interest rates. This creates an undesirable pressure on the repayment capacity and financial stability of borrowers, while also impacting investment and production. In this context, to maintain loan discipline and avoid the risk of creating new non-performing loans, the following instructions shall be implemented by all scheduled banks:
(1) If the interest rate is stated as non-variable (fixed) in the loan sanction letter, no upward change shall be made to the interest rate of that loan during the tenure of the loan. Only if the interest rate is stated as variable (floating/adjustable/reviewable) in the loan sanction letter, upward adjustments to the interest rate of that loan may be made following the procedure below, where necessary:
(a) The interest rate of the loan shall not be increased more than once a year; (b) The concerned customer must be given notice at least 3 (three) months in advance regarding any increase in the interest rate of the loan. The interest rate of any loan shall not be increased without informing the customer; and (c) Upward adjustments to the interest rate of the loan shall be limited to a maximum of 0.50 percent per adjustment for term loans and a maximum of 1.00 percent per adjustment for working capital and other loans.
(2) In determining the interest rate for new loan approvals, the instructions issued previously by BRPD shall remain in force.
These instructions shall be implemented immediately.
Yours faithfully,
(Abu Farah Md. Naser) General Manager Phone: 9530252