bangladesh-bank has 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 has been set at Tk 10 lakh, taking it up a notch from Tk 5 lakh earlier, according to a circular issued by Bangladesh Bank on Tuesday.

The banks can provide an additional Tk 10 lakh limit for credit cards, but it cannot exceed Tk 25 lakh. The excess credit will have to be backed by liquid securities, like fixed deposits or foreign currency accounts maintained with the respective bank.

The personal loan limit has been increased to Tk 5 lakh without any securities, from Tk 3 lakh previously. Banks may lend more if the loan is backed by liquid securities, but it cannot exceed Tk 20 lakh under any circumstance.

Earlier, banks were allowed to lend up to Tk 10 lakh in excess of the limit.

At the same time, banks' consumer financing growth rate must not exceed total loan growth, according to the notice.

The bank credit limits have been revised considering the rapid growth of the consumer product market and rise of per capita income – a move appreciated by market players and financial digitisation advocates.

The decision has rationality in terms of reducing cash, checking transactions and promoting digital transactions, said Salehuddin Ahmed, former central bank governor.

The increased credit ceiling will create more demand in the market, which will support investment growth, he said.

The growing consumer loans may increase inflation but if supply of goods meets demand, then the inflation risks will be minimised, he added.

A hike in credit limit was anticipated as the use of credit cards is much lower in Bangladesh, in comparison to neighbouring India, said Biru Paksha Paul, former chief economist of Bangladesh Bank.

Consumption is the largest component of domestic output and the government's job is to stimulate it, he added.

Moreover, investment growth in terms of GDP remained slow. The higher consumption will encourage investment, he said.

A growth in consumer loans will absorb the excess liquidity, which is a headache for the banking sector at the moment, he added. The raised credit card limit will develop a habit of spending among consumers, said Mohammed Nurul Amin, managing director of Meghna Bank. Higher spending power will increase production and employment in the economy, he added.

The weighted average interest rate on consumer financing was 9.68 percent as of February, down from the overall lending rate of 9.77 percent, according to Bangladesh Bank data. Total loans under consumer financing stood at Tk 52,467 crore as of July-September last year, which was 8.39 percent of total loans in the industry. 

News: Daily Star/6-apr-2017