BB fixes interest rate for loans from green fund

The central bank yesterday fixed the interest rate of its US dollar and euro financing from the Green Transformation Fund (GTF) owing to the discontinuation of Libor and the upward trend of the interest rate globally.

The Bangladesh Bank operates the fund in the two currencies to extend loans to authorised dealers (ADs) for on-lending or re-financing to borrowers to help them implement green and environment-friendly initiatives.

The rate-fixing comes after the London Interbank Offered Rate (Libor), a benchmark interest rate at which major global banks used to lend to one another in the international interbank market for short-term loans, ceased to exist.

Following the rate scandal, the Libor was phased out gradually from 2022 before abolishing it completely in July 2023.

Like most of the borrowers in other countries, Bangladesh's businesses also took foreign loans based on the rate.

Given the global context of the Libor discontinuation and the rising interest rate globally, the interest of the financing from the fund has been fixed at 5 percent per annum, said the BB in a notice yesterday.

The rate will comprise the central bank's margin of 2 percent, which was Libor-plus 1 percent previously, and ADs' markup of 3 percent, up from 1 percent to 2 percent.

The new rate came into effect from July 1.

In 2016, the BB established the GTF to accelerate sustainable growth in export-oriented textile and leather sectors conducive to the transformation of a green economy.

A revolving fund of $200 million was made available to borrowers at the time. In 2020, the BB introduced a 200-million-euro fund.

The tenure of the loan is five years to 10 years with a one-year grace period.