Loans for farmers to be cheaper

The central bank has moved to slash the lending rate on farm loans by one percentage point to 8 percent as most banks have cut the rates of their major loan products.

In July, majority of the banks announced that they cut interest rate on term loans, working capital and trade financing to 9 percent from the previous range of 11 to 13 percent.

The central bank always sets the lending rate on farm loans below those on the main loan products as agriculture is a priority sector, a BB official told The Daily Star.

In June last year, the central bank lowered the interest rate on farm loans to 9 percent from 10 percent as banks were sitting on excess liquidity.

The decision of the Bangladesh Association of Banks, a forum of the directors of private lenders, to bring down the interest rates on lending and deposit to 9 percent and 6 percent respectively will help the central bank revise the farm lending rate, the BB official said.

Besides, weighted average interest rate on lending ranged between 9.30 percent and 9.96 percent throughout the last fiscal year, creating leeway to reduce the rate on agriculture loans.         

The central bank may issue an instruction to this end within one or two days, the official said.

The upcoming BB decision will help farmers get agriculture loans at a cheaper rate, which will give a boost to overall farm loan disbursement, according to a central bank assessment paper on the issue.

Farm loan disbursement rose 1.88 percent year-on-year to Tk 21,393 crore in 2017-18, according to data from the BB.

As per the central bank's policy, banks have to set aside at least 2 percent of their total loans for the agriculture sector.