Bangladesh Bank launches 2nd green fund worth 200m euro

Staff Correspondent | Published: 22:21, Apr 15,2020


The Bangladesh Bank on Wednesday launched its second green transmission fund (GTF) worth 200 million euro to allow manufacturers and exporters to borrow funds at the highest 3 per cent interest rate.

A GTF worth $200 million had already been in place, taking the total size of the BB-formed GTF to $418 million, as per a circular issued by the central bank on Wednesday.

It said that the exporters or manufacturers would get loans from the fund for five to 10 years.

The central bank would give funds to the banks at the rate of six-month EURIBOR plus 1 per cent interest, said the circular, adding that the bank, however, would have to pay 1-per cent interest when the six-month EURIBOR would be negative.

The rate of EURIBOR has turned negative recently, meaning that the applicable interest rate on the banks would be 1 per cent.

The Euro Interbank Offered Rate is a daily reference rate published by the European Money Markets Institute based on the average interest rates at which Eurozone banks offer to lend unsecured funds to other banks on the euro wholesale money market.

On top of the interest rate that would be charged by the central bank, the banks would be allowed to charge another 1 to 2 per cent interest on the exporters and manufacturers, taking the effective rate for the customers to between 2 and 3 per cent.

The BB circular said that financing on long-term basis (five to 10 years) from the GTF in Euro would be admissible for all manufacturing industrial enterprises for importing environment-friendly and energy efficient, including solar energy and renewable energy under the power sector, and green capital machinery and accessories.

‘This GTF in Euro is also to widen the scope to import, under only the buyer’s credit, industrial raw materials used in all manufacturing enterprises, including both export-oriented and deem exporters for the tenure,’ the BB said.

The other rules for issuing credit from the GTF in Euro would be the same as it is for the GTF in US dollar.

The interest rate on the GTF in Euro would be lower than the interest rate on the GFT in US dollar which includes six-month LIBOR  plus another 1 per cent, taking the cost of fund for the banks to around 2.25 per cent.

Once the banks’ 1-2 per cent interest margin on the cost of fund is taken into account, the applicable cost for the exporters and manufacturers would stand between 3.25 to 4.25 per cent.

Like the businesses, the GTF in Euro would also be beneficial for the central bank, said a senior official of the central bank.

In January, 2016, the BB introduced a refinance scheme called the GTF amounting to $200 million for the export-oriented industries of the textile and leather sectors to set up environment-friendly infrastructures.

In 2017, the BB, as part of its move to widen the scheme, reduced the interest rate on the scheme to six-month USD LIBOR plus 1 per cent instead of six-month USD LIBOR plus 2.25 per cent.

The exporters and manufacturers receive loan from the GTF for five to 10 years with one-year grace period.

The borrowers are also allowed to repay the interest accrued for the grace period on equal quarterly repayment without compounding.

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