Bangladesh Bank moves to cut credit card interest rates

In an order issued on Sunday, the central bank said the banks will be required to maintain 2 percent general provision against all unclassified credit card loans under consumer financing.

The general provision rate was previously 5 percent. General provision is a sum deposited annually against bank loans. The rate varies according to different types of loans.

The order said the change of the rate aims to “promote cashless secured transaction (considering) the cost of operation of the credit card business”.

Abu Farah Md Nasser, General Manager of the Banking Regulation & Policy Department, said higher provision rate increases the cost of operation, and cutting the rate will bring it down.    

“So that they can charge less interest on credit cards,” he added.

Customers prefer credit cards to loans because it is easier to draw money or purchase products.

The service is getting more and more popular in Bangladesh despite huge numbers of complaints over high interest rates on credit cards.

Bangladesh Bank published the guidelines on credit card operations in May, setting the ceiling for the interest rate, following allegations that the banks were levying high interest rates in the absence of central bank guidelines.

The central bank initially said the interest rate on credit cards cannot be more than 5 percentage points from the rates on consumer loans given by a bank, but later revised the rate under pressure from the banks.

According to the revised guidelines, the interest rate on credit card loans cannot be more than 5 percentage points from the highest interest rate on any loan offered by the bank.

The guidelines will go into effect from next year.