Banks charging high interest rates on credit cards

Anisul Islam Noor

12 November, 2019 12:00 AM printer

Banks charging high interest rates on credit cards

Banks are charging high interest rates on credit cards despite Bangladesh Bank’s efforts to reduce interest rates and make the credit card services more customer-friendly.

Many credit card users alleged that the credit card policy of the central bank is not really helping to reduce interest rates as much as it was thought to be.

The central bank issued a guideline on credit card operations for the first time in May last year, capping the interest rate.

The central bank guideline said the interest or profit rate on the outstanding amount of credit cards will not exceed five percentage points than the highest interest rate levied on any other loan product.

Some banks then said the calculation was not accurate as banks maintained five percentage points spread between the interest rates on credit cards and the highest rate offered on other loan products.

The Association of Bankers, Bangladesh (ABB), a forum of chief executive officers of the private commercial banks, opposed the guideline at that time, arguing that the interest rate on credit cards would come down to 16-17 percent, half the existing rate, if the instruction is implemented.

Later, the central bank revised the guideline, relaxing the interest rate on credit cards. For credit cards, banks are now allowed to charge the lending rate on consumer loans plus five percent.

According to Bangladesh Bank, there are over 1 million active credit cards in the market. But the number of cards issued would be about 1.5 million in the market.

But a bank was found to charge 32 percent interest rate on credit cards against its next highest interest rate of 18 percent on consumer loan product, violating the central bank policy.

Bangladesh Bank earlier issued a policy for reducing credit cards service charges.

The policy stated that banks can not charge more than 5 percent of their profits or charges from credit cards, except in the case of services other than credit cards. For example, a bank earns a maximum of 18 percent interest on consumer loans. In this case, no more than 23 (18 + 5) percent interest or service charge can be charged to the credit card. Banks were instructed to comply with this policy from January this year.

But at the beginning of the year, the commercial banks ignored this directive. As a result, out of the 32 banks that operate credit cards, 18 banks faced show cause from the central bank. Then the credit card operating banks become aware on the matter.

Loan portfolio against the credit cards stands at about Tk 2,100 crore. The major players include City Bank, Standard Chartered, Eastern Bank, Mutual Trust, Dutch-Bangla Bank, Islami Bank, Brac Bank and Prime Bank.