Bangladesh Bank has introduced a significant policy overhaul aimed at strengthening long-term investment in the country’s industrial sector and boosting overall productivity. The central bank believes the revised framework will make long-term financing more accessible, cost-effective, and predictable for businesses, thereby encouraging industrial expansion and job creation.
In a circular issued on Thursday, the central bank announced a restructuring of the long-term financing facility. Under the new arrangement, banks and financial institutions will access funds at differentiated interest rates based on their financial health, assessed through the internationally recognised CAMELS rating system (Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity).
This marks a shift towards a more performance-linked funding mechanism, where stronger banks benefit from lower borrowing costs, while weaker institutions face comparatively higher rates.
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Revised interest rate structure
The new rate structure varies according to both the CAMELS rating and loan tenor (5, 7, and 10 years), as shown below:
| Bank Rating | 5-Year Tenor | 7-Year Tenor | 10-Year Tenor |
|---|---|---|---|
| Rating 1 | 1.00% | 1.25% | 1.50% |
| Rating 2 | 1.25% | 1.50% | 1.75% |
| Rating 3 | 1.50% | 1.75% | 2.00% |
According to Bangladesh Bank, this revised structure replaces the earlier benchmark-linked system, which tied lending rates to international reference rates plus a variable margin. That approach often exposed domestic borrowing costs to fluctuations in global interest rate cycles.
Move towards stability and predictability
By introducing a fixed, rating-based framework, the central bank aims to reduce volatility in long-term financing costs. Officials say this will provide a more stable and predictable borrowing environment for both lenders and industrial borrowers, particularly in capital-intensive sectors such as manufacturing, infrastructure, and energy.
At the borrower level, banks will continue to determine lending rates based on their own cost of funds and operational expenses. However, the new rules cap the spread between the cost of funds and the lending rate at 2 to 3 percentage points, compared with the previous limit of 1 to 2 percentage points.
This adjustment is expected to allow banks greater flexibility while still ensuring that end borrowers benefit from relatively lower financing costs.
Increased loan limits
The revised policy also raises borrowing ceilings. Under the new framework, a single borrower may obtain up to approximately USD 100 million from an individual bank. In syndicated arrangements involving multiple banks, the maximum exposure limit has been set at USD 200 million.
Officials believe this increase will better accommodate large-scale industrial and infrastructure projects, which often require substantial long-term capital investment.
Implementation and expected impact
The new policy will come into effect from 1 May and will apply to both existing and newly sanctioned loans under the facility.
Bangladesh Bank has stated that the reforms are designed in response to evolving macroeconomic conditions, rising investment demand, and the need for more structured long-term financing in the industrial sector.
Economists expect the changes to stimulate private investment, enhance industrial capacity, and contribute to employment generation. By aligning funding costs more closely with financial stability and institutional performance, the central bank hopes to foster a more resilient and investment-friendly financial ecosystem.