BB increases credit card and consumer loan limits

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The Bangladesh Bank has doubled the credit card limit and extended the personal loan limit to support investment growth by boosting consumption in the economy.

The new credit card limit was set at 10 lakh Tk, going up a notch to 5 lakh Tk earlier, according to a circular released by the Bangladesh Bank on Tuesday.

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Banks can provide an additional limit of 10 lakh Tk for credit cards, but it cannot exceed 25 lakh Tk. The excess credit will have to be backed by liquid securities, such as term deposits or foreign currency accounts held with the bank concerned.

The personal loan limit has been increased to Tk 5 lakh without any collateral, against Tk 3 lakh previously. Banks can lend more if the loan is backed by liquid securities, but under no circumstances can it exceed Tk 20 lakh.

Previously, banks were allowed to lend up to Tk 10 lakh over the limit.

At the same time, the growth rate of banks’ consumer finance should not exceed the total growth of loans, according to the opinion.

Bank credit limits have been revised in view of the rapidly growing consumer products market and increasing per capita income, a decision appreciated by market participants and supporters of financial digitization.

The decision has rationale in terms of reducing liquidity, verifying transactions and promoting digital transactions, said Salehuddin Ahmed, former central bank governor.

Raising the credit limit will create more demand in the market, which will support investment growth, he said.

Increasing consumer lending may increase inflation, but if the supply of goods meets demand, then inflation risks will be minimized, he added.

An increase in the credit limit was expected because credit card usage is much lower in Bangladesh than in neighboring India, said Biru Paksha Paul, former chief economist at Bangladesh Bank.

Consumption is the largest component of national production and the government’s job is to stimulate it, he added.

In addition, the growth of investment in terms of GDP has remained slow. The increase in consumption will encourage investment, he said.

Growth in consumer credit will absorb excess liquidity, which is currently a headache for the banking sector, he added. The increased credit card limit will develop a spending habit among consumers, said Mohammed Nurul Amin, chief executive of Meghna Bank. Higher purchasing power will increase production and employment in the economy, he added.

The weighted average interest rate on consumer finance was 9.68% in February, down from the overall lending rate of 9.77%, according to data from the Bangladesh Bank. Total consumer finance loans stood at Tk 52,467 crore in July-September last year, which represented 8.39% of total industry lending.


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