The central bank has directed commercial banks not to charge more than 5 percent on top of the highest interest rate of a consumer loan for credit card use.

Bangladesh Bank issued a guideline on Thursday for credit card operations, setting the maximum limit on interest rate on the payment tool for the first time.

The notice aims to manage the risks of a bank's credit card business as well as protect the interest of customers. The interest will be charged on the unpaid amount due for payment.

The use of credit cards as a payment instrument to purchase goods and services is increasing day by day. The outstanding amount of credit cards was Tk 2,963 crore in December last year, according to Bangladesh Bank data. Currently, the average interest rate on consumer credit is 12 to 13 percent, while the rate for credit card loans is 30 percent.

If banks adjust the interest rate as per the new guideline, it will come down to 20 percent on average for credit cards.

The interest rate ceiling will reduce banks' profitability as the monitoring cost for unsecured loans is high, said a top executive of a private bank. He said the cost to ensure cyber security is also high, which will put pressure on banks to get expected profits from the credit card business.

Last month, BB doubled the credit card limit and extended the personal loan ceiling to support investment growth by stimulating consumption in the economy. The new credit card limit was set at Tk 10 lakh, which was Tk 5 lakh earlier.

Banks can provide an additional Tk 10 lakh to credit cardholders. The excess credit will have to be backed by liquid securities, such as fixed deposits or foreign currency accounts, maintained with the respective bank, said the guideline. 

According to the new guideline, cardholders will be allowed cash withdrawal of up to 50 percent of the limit.

Cardholders who wish to surrender cards because of any change to terms, rates or charges shall be permitted to do so without being levied any extra charge, according to the guideline.

The card issuing bank will develop a comprehensive institutional policy on credit card operations and a code of conduct following approval from the bank's board.

The card issuer will ensure that the due date does not fall on a Friday, Saturday or any other public holiday. Cardholders will get a grace period of 1 or 2 days if the due date falls on a holiday.