BB imposed 4 per cent penal interest for overdue EDF loans

Staff Reporter :
Bangladesh Bank (BB) has decided to impose four percent penal interest to on unpaid amount of Export Development Fund (EDF) loans after observing EDF loans are not being repaid within the scheduled period.
“It has been decided that penal interest (compensation in case of Shariah based Islamic Banking) will be charged by Bangladesh Bank to ADs at 4.00 percent per annum (pa) above the prevailing interest rate on overdue amount of EDF loans for the delayed period” as per a BB circular issued on Sunday.
The BB asked in the same circular to the Authorized Dealers (ADs) to submit a debit authority for realizing the principal and accrued interest, including penal interest, at the time of application for the EDF loan. A debit authority gives permission to take funds directly from the bank’s account.
However, in February 2023, Bangladesh Bank (BB) had increased the interest rate on loans made from its Export Development Fund (EDF) by 50 percentage points where interest rate on EDF loans to ADs charged by Bangladesh Bank at 3 percent per annum (pa), while ADs charged interest to manufacturer-exporters at 4.50 percent pa.
Meanwhile, the EDF was set up in 1989 with a tiny amount of reserves, which gradually increasing as the current volume is USD six billion.
Earlier in last January, the central bank set up an alternative fund of Tk 100 billion in local currency to reduce pressure on forex reserves.
EDF facilitates access to financing in foreign exchange for input procurements by manufacturer-exporters. AD banks can borrow US dollar funds from the EDF against their foreign currency denominated LC to manufacturer-exporters.
Exporters can pay off their loans from the earnings from their exports. When the export proceeds realized, the bank deducts the loan amount, converts the rest of it into the taka and transfers the amount to the customer.