The central bank has decided to impose a 4 per cent penal interest on the banks' unpaid amount of loans made from its Export Development Fund (EDF).

In 2017, the Bangladesh Bank issued rules on the procedures and realisation of principal and accrued interest on EDF loans.

If the loans and interests are not repaid within the deadline, the BB can debit the overdue amount from the foreign currency clearing accounts that authorised dealer banks maintain with the Bangladesh Bank.

In a circular yesterday, the BB said it is observed that EDF loans are not being realised in accordance with instructions.

In view of the situation, it has been decided that a 4 per cent penal interest, or compensation in the case of Shariah-based banking, will be charged per annum above the prevailing interest rate on the overdue amount of EDF loans for the delayed period.

The BB asked ADs to submit a debit authority for realising the principal and accrued interest, including penal interest, at the time of application for the EDF loan.

Currently, the volume of the EDF is $6 billion and the interest rate on the loans given from the fund is 4.5 per cent

A debit authority gives an individual or company permission to take funds directly from someone's bank account.

Established in 1989, the EDF facilitates access to financing in foreign exchange for input procurement by manufacturer-exporters. Banks can borrow US dollar funds from the EDF against their foreign currency loans to manufacturer-exporters.

Currently, the volume of the EDF is $6 billion and the interest rate on the loans made from the fund is 4.5 per cent.

The central bank move will give some comfort to banks since the cost of funds is going up. Banks would pass the penal interest onto customers, said a senior banker.  

"The cost of deposits has increased. It has sent the cost of funds for banks higher."

The banker admitted that some loans related to the EDF are being deferred. 

Speaking to The Daily Star, a central banker said: "The volume of overdue EDF loans is rising. So, we have moved so that these loans become regular."

The BB notice comes at a time when Bangladesh's foreign currency reserves continue to face immense pressure because of the volatility in the foreign exchange regime caused by the Russia-Ukraine war.

Owing to higher import bills against moderate export receipts and lower remittance inflow, the reserves slipped to a six-year low of $31.15 billion earlier this month. This means the reserves have fallen by about 30 per cent from the $44.14 billion recorded in March last year.