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Are the days of cheap loans over?

However because the economic system inches in direction of normalcy using on falling coronavirus infections and ongoing vaccination programme, the demand for loans has made a comeback within the final couple of months.

The restoration in credit score demand is predicted to convey a few credit score crunch – a scenario that’s forcing banks to lift lending charges. This was evident from a lot of indicators within the banking sector, signalling the tip of low cost loans in Bangladesh.

Bankers say the lending charges are more likely to enhance within the subsequent couple of months because the economic system is progressively recovering from the slowdown introduced on by the coronavirus pandemic.

A rising pattern of import financing and demand for short-term loans are taking part in a serious position in pushing up the credit score demand.

4 high bankers say the lending charge has already began to extend in maintaining with the demand for loans.

The weighted common lending charge stood at 7.24 per cent in September, unchanged from August, in keeping with knowledge from the Bangladesh Financial institution. However, the common lending charge had confronted a downward pattern since at the least January final 12 months.

As well as, the yield on Treasury payments and bonds has seen an upward motion in current months.

The rate of interest on a five-year T-bond stands at 6.50 per cent this month in distinction to five.75 per cent a month in the past.

The federal government mainly borrows from the banking sources by issuing T-bills and bonds, and the speed normally will increase if it takes on money owed regularly.

The federal government secured a internet mortgage of Tk 9,696 crore from the banking sector between July and October.

Banks additionally contemplate the yields on the federal government securities whereas setting the rate of interest of their lending merchandise.

The rate of interest of the inter-bank name cash market stood at 2.25 per cent in October, up from 1.90 per cent the month earlier than.

The inter-bank name cash market is a platform the place lenders borrow and lend one another on an in a single day foundation. Banks generally meet short-term funding necessities by borrowing from the market.

The credit score progress within the personal sector stood at 8.77 per cent in September, up from 8.42 per cent a month earlier.

“The period of low cost lending charge has ended because the demand for loans is on the rise,” stated Mirza Elias Uddin Ahmed, managing director of Jamuna Financial institution.

“The charges are progressively rising because the economic system is getting again its momentum.”

The financial institution now costs rate of interest between 7 per cent and seven.5 per cent on working capital, which was 3-6 per cent a few months in the past. Working capital, with a compensation tenure of a most of 1 12 months, is given out to companies to fulfil their common bills.

The rate of interest on time loans, which carry a compensation interval from three to 6 months, has doubled to just about 6 per cent at Jamuna Financial institution, Ahmed stated.

The pickup within the lending charges additionally got here after the central financial institution requested banks to set an rate of interest on deposits that’s increased than the inflation charge. This has given a lift to the lending charge as banks are actually compelled to pay greater than 5 per cent to savers.

The rate of interest on time period loans has just lately touched 8 per cent, which had declined to six per cent a few months in the past.

“The surge within the import financing has additionally been liable for the upward pattern of lending,” Ahmed stated.

Sohail RK Hussain, managing director of Meghna Financial institution, stated that liquidity stress within the banking sector may seem within the days forward as credit score demand elevated.

Meghna Financial institution is charging 5.5 per cent for the working capital loans, up by at the least one share level in comparison with the degrees seen on the peak of the pandemic.

The identical can be relevant to dwelling loans because the rate of interest stands at 8 per cent in distinction to 7.5 per cent three to 4 months in the past.

Md Abdus Salam Azad, managing director of Janata Financial institution, stated that credit score demand had accelerated because the economic system opened up.

“There isn’t a scope for the lending charge to go down within the coming days.”

The state-run lender has been following 6 and 9 per cent charges for deposit and loans respectively for months, as instructed by the central financial institution in April final 12 months.

“All state-run business banks have adopted the identical ceilings.”

Mohammad Shams-Ul Islam, managing director of Agrani Financial institution, stated his financial institution had obtained a very good variety of credit score proposals from companies as companies have been increasing.

“In opposition to the backdrop, lending charge will enhance as anticipated.”

However, Emranul Huq, managing director of Dhaka Financial institution, stated the demand for loans was but to choose up, and his financial institution now disbursed loans solely to good debtors.

The financial institution has saved the lending charge nearly unchanged, he stated. The lending charge would return to the traditional degree inside six months.

Abul Kashem Md Shirin, managing director of Dutch-Bangla Financial institution Ltd, echoed Huq to some extent, saying he had not seen any outstanding change within the credit score demand at his financial institution apart from the working capital.


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