18 banks violet rules on credit card interest

FT ONLINE

The Bangladesh Bank has accused 18 banks of charging higher interest rate on credit cards in violation of the rules.

The central bank recently sent letters to the banks asking them to explain within seven days why the interest rates on credit cards has exceeded the highest lending rate on any of their products by more than five percentage points.

According to a central bank guideline, the interest or profit rate on the outstanding amount of credit cards will not exceed five percentage points than the highest interest rate levied on any other loan product.

But BB data showed one of the 18 banks charged 31.50 percent interest rate on credit cards in May against its next highest interest rate of 13.50 percent on a loan product.

This meant the bank maintained an interest rate spread of 13.50 percentage points between the credit card product and the loan product in violation of the BB rules.

The central bank has also ordered the banks to bring down the interest rate on credit cards in line with its instruction.

A managing director of a commercial bank, one of the accused banks, said that the BB's calculation was not accurate as his bank maintained five percentage points spread between the interest rates on credit cards and the highest rate offered on another loan product.

He said the bank has imposed the highest 19 percent interest rate on SME loans and 24 percent on credit cards.

The central bank issued the guideline on credit card operations for the first time in May last year, capping the interest rate.

At that time, the Association of Bankers, Bangladesh, a forum of chief executive officers of the private commercial banks, opposed the guideline, saying the interest rate on credit cards would come down to 16-17 percent, half the existing rate, if the instruction is implemented.

Later, the central bank revised the guideline, relaxing the interest rate on credit cards. For credit cards, banks are now allowed to charge the lending rate on consumer loans plus five percent.

There are nearly 9.8 lakh credit cards in the market, according to the BB. But the number of cards issued would be about 15 lakh in the market.

Major players include City Bank, Standard Chartered, Eastern Bank, Mutual Trust, Dutch-Bangla Bank and Prime Bank. Loan portfolio against the credit cards stands at about Tk 2,000 crore, according to a banker.