BB issues new rules on home loan repayment

The Bangladesh Bank has issued new directives on the repayments of industrial term and home construction loans in line with the new market-based method of calculating the interest of bank loans.

The central bank scrapped the previous formula, which was based on the Six-month Moving Average Rate of Treasury bills, abbreviated as SMART, on May 8 this year in order to make interest rates fully market-based.

The adverse global economic situation and the new method of calculating interest on bank loans have caused the interest rate to surpass the fixed rate that was in effect before July 1, 2023, according to a central bank circular.

This rate hike has put borrowers in trouble as the amount of each instalment has increased.

Rescheduling the number of instalments without increasing the repayment amount needs to be considered so that the trend of industrialisation and export can be maintained. This would also boost the repayment capacity of borrowers with limited income, according to BB.

At present, bank-client relationships, demand for loans and the supply of loanable funds are the main factors in fixing the market-based interest rate.

The central bank's instructions regarding the collection of instalments of loans disbursed before July 1, 2023, include extending the period required for collection of instalments so that recovered loans do not become part of debt restructuring.

In the case of loans taken against the salary of employees, the bank may decide on its own regarding repayment within the period of retirement of the customer from employment.

Also, loans which were unclassified as of March 31 this year will also be restructured, but it will not be applicable in the case of converted term loans.

The central bank's instruction also clarified the loans that will not be under this scheme, such as loans given under incentive packages or special funds made or formed by BB or the government.

The central bank underscored the need for eligible borrowers to know about the rescheduling facility as they can apply for it by writing and then it can be provided subject to the receipt of the application.