Cenbank restructures long-term financing facility; new rates effective from Friday
Under the new structure, the interest rate for participating financial institutions (PFIs) is determined by their Camels rating, a US-developed supervisory tool used by regulators to assess a bank's overall health and stability, along with the loan tenure
Bangladesh Bank has overhauled the interest rate structure of its Long-Term Financing Facility (LTFF), shifting from a SOFR-linked model to a variable percentage-based system.
According to a circular issued by the central bank today (30 April) and sent to all scheduled banks, the new rates and operational revisions will come into effect from tomorrow (1 May), and will apply to both existing and future loans.
Under the new structure, the interest rate for participating financial institutions (PFIs) is determined by their Camels rating, a US-developed supervisory tool used by regulators to assess a bank's overall health and stability, along with the loan tenure.
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Banks with a Camels rating of one will be charged a variable interest rate of 1% for tenures up to five years, 1.25% for up to seven years, and 1.50% for up to 10 years.
For banks with a rating of two, the rates are set at 1.25%, 1.50%, and 1.75%, respectively.
Banks with a rating of three will face rates of 1.50%, 1.75%, and 2% based on the same tenure brackets.
This marks a significant departure from the previous structure introduced in 16 July 2023, which was based on the Secured Overnight Financing Rate (SOFR) plus a margin.
Previously, banks with a CAMELS rating of one were charged SOFR plus 0.25% to 0.75%, while those with a rating of three paid SOFR plus 0.75% to 1.25%, depending on the loan period.
The central bank has also allowed PFIs more flexibility in determining interest rates for end-borrowers.
Banks can now set their lending rates by adding a risk-adjusted spread and profit margin ranging between 2% and 3% above their cost of funds.
This is an increase from the previous margin range of 1% to 2%.
The final rate will be determined by the PFIs after considering borrowing costs and operational expenses.
Regarding borrowing limits, an individual borrower can apply for a maximum of $10 million through a single PFI.
In the case of syndicated financing involving two or more PFIs, the maximum threshold is capped at $20 million.
Applications for these funds must be submitted to the Financial Sector Support and State Promotion Department (FSSSPD) via the respective participating banks.
