Bangladesh Bank has taken an initiative to make vibrant the Dhaka Interbank Offered Rate (DIBOR) to fix a uniform interbank interest rate for short-term loan within this year.
Like London Interbank Offered Rate, which is popularly known as LIBOR, a benchmark rate that some of the world’s leading banks charge each other for short-term loans, the BB wants to activate the DIBOR.
The BB hopes that once the DIBOR is established full-fledged, the country’s commercial banks and businesspeople will be able to use the rate as a benchmark to set the interest rate for short-term loans, a BB official told New Age on Wednesday.
The central bank issued a letter to managing directors and chief executive officers of 15 commercial banks including 12 primary dealers on June 14 asking them to place their opinion before the BB in the shortest possible time on how to make the DIBOR vibrant.
The official said that the central bank had recently taken a number of measures to activate the DIBOR with a view to establishing a uniform rate for the banks, corporate bodies and individuals.
The central bank asked Bangladesh Foreign Exchange Dealers Association, an organisation of the country’s scheduled banks, in June 2016 to draw up a code of conduct over the DIBOR after which the BFEDA has recently placed a draft proposal in this regard, he said.
The BB issued a circular to all banks in December 2009 asking them to submit the interest rate on both lending and borrowing of one-day, one-week and three-month to the BFEDA to set the DIBOR.
But the vast majority of the banks did not follow the directive resulting that the central bank failed to make the DIBOR effective, the official said.
The clients will be able to bargain with the banks to set the interest rate on their short-term borrowing like letters of credit and cash credit (CC loan) based on the DIBOR.
The BFEDA in its recent proposal said that all banks would have to submit their interest rate on lending of one-day, seven-day, 14-day, one-month, three-month and six-month within 3:00pm on every working day.
The BFEDA will calculate the weighted average of the rates given by all banks to set the DIBOR and it (BFEDA) will publish the rate by 6:00pm on its website.
BFEDA chairman Nurul Amin told New Age that the banks were now setting the interest rate in their own manner resulting in different rates of interest for one lending product of the banks.
Discipline will be ensured while setting the interest rate once DIBOR becomes effective full-fledged, Amin, also managing director of Meghna Bank Ltd, said.
The BB official said that the central bank had arranged a meeting on April 23 with 15 banks including Sonali, Janata, Mercantile, National, Southeast, Citibank NA, Standard Chartered and HSBC to seek their opinion.
The central bank also issued the letter to some 15 banks as they are now dominating the banking sector in terms of their market share, he said.
‘Our neighbouring country India introduced such system called Mumbai Interbank Offered Rate many years ago that is now highly vibrant. So, we lag behind India to bring discipline in calculating the rate of interest for the short-term loans’.
The central bank asked the BFEDA to form a monitoring committee to make the DIBOR effective within this year, he said.
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