Bangladesh Bank Cuts Penalty Interest to Boost Investment

Bangladesh Bank has reduced the maximum penalty interest rate on overdue loans to 0.5 percent from the previous 1.5 percent in an effort to encourage investment and improve business productivity amid ongoing global economic pressures.

The decision was announced through a circular issued on Wednesday by the Banking Regulation and Policy Department (BRPD) of the central bank.

The circular, signed by BRPD Director Gazi Md Mahfuzul Islam, revised earlier guidelines introduced in May 2024 regarding market-based interest rate determination.

Under the new rules, banks will be allowed to impose a maximum penalty interest rate of 0.5 percent on overdue loans or unpaid instalments.

For continuous and demand loans, the penalty interest will apply to the total outstanding amount. In the case of term loans, however, the additional charge will apply only to the overdue instalment amount.

Bangladesh Bank said the move was taken considering the “prevailing global economic situation” and the need to stimulate investment and productivity in the economy.

The central bank said the revised instruction has come into effect immediately.

It also clarified that all other provisions under BRPD Circular No. 10/2024 will remain unchanged, including measures already implemented under the previous policy framework.