Bangladesh Bank on Sunday revised the interest rate on foreign currency loans to facilitate trade financing following demand from banks, said a BB circular issued on the day.
In February this year, banks at the 21st forum of authorised dealers requested the central bank to set the rate on foreign currency loans, which they issue against export and import bills, at 7 per cent inclusive of London Interbank Offered Rate (LIBOR).
The central bank, however, in a circular on Sunday, allowed banks to charge their customers up to LIBO plus 3.5 per cent.
As per the central bank’s instruction issued in 2013, the authorised dealers of banks are allowed to issue foreign currency loans against export and import bills also known as buyer’s credit and supplier’s credit at highest 6 per cent interest inclusive of LIBOR.
The loans are being received in foreign currency from overseas sources on the basis of local bank guarantees.
Banks demanded the interest rate be set at 7 per cent inclusive of LIBOR as they found profit margin insignificant due to a rise in LIBOR.
In February, bank officials had mentioned that the six month’s average and one year average rate of LIBOR was 0.76 per cent and 1.08 per cent respectively when BB in 2012 imposed a cap on the interest rate on foreign currency loans for such trade.
As per the latest data, the rate of six month’s average LIBOR increased to 2.64 per cent.
If the new rate is taken into consideration, banks would be able to charge highest 6.14 per cent for foreign currency trade finance.
For now, banks will get an additional 0.14 per cent interest advantage due to the revised rate.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking