The Bangladesh Bank on Thursday assured the banks that it will consider raising the ceiling for home loans to Tk2 crore, from the existing Tk1.20 crore.
The assurance came at a meeting held between the central bank and the Association of Bankers, Bangladesh, at the former's headquarters. Bangladesh Bank Governor Fazle Kabir presided over the meeting.
Earlier, the association had proposed the central bank to raise the ceiling for home loans amid rising demand for the financial product, which is higher than Tk1.20 crore now as the price of land and construction costs have increased.
Currently, the Bangladesh House Building Finance Corporation finances between Tk25 lakh to Tk80 lakh for purchasing an apartment. Non-bank financial institutions can finance beyond Tk1.20 crore as they are not limited by an authorised ceiling.
In response to the Association of Bankers' demand, the central bank assured to raise the ceiling, said a senior Bangladesh Bank executive who attended the meeting.
Earlier, in 2015, the central bank had increased the ceiling for home loans to Tk 1.20 crore, from Tk75 lakh, with a debt-to-equity ratio of 70:30.
As of June 2019, total home loans stood at Tk25,556 crore, which was 4.67 percent of consumer loans. A bank can grant home loans up to 10 percent of its consumer financing.
In this perspective, the banking industry has more space to provide home loans, according to central bank data.
The interest rate for home loans came down to single digits in 2017, but it did not last long as the banking sector fell into a liquidity crisis from the beginning of 2018.
As a result, the interest rate for home loans jumped to above 14 percent during the middle of the last year.
However, the lending rate came down to 10 percent plus in recent months after the liquidity crisis eased.
Delta Brac Housing Finance Corporation, a dedicated non-bank financial institution for home financing in the private sector, is currently lending home loans at 12 percent interest rate.
The Bangladesh House Building Finance Corporation, another dedicated organisation for home financing in the public sector, is lending at single digit interest rate.
At the meeting, the bankers demanded to relax the loan write-off policy and tighten loan classification rule for borrowers with loans below Tk10 lakh.
Bankers wanted to lift the time bound of three years to write off a loan, saying that it will help banks to reduce classified loans.
ABB also demanded to reduce the loan classification time from the existing six months to three months for small borrowers. However, the central bank ruled out both of their proposals, said sources present at the meeting.
Currently, 97 percent of the borrowers have loans below Tk10 lakh, but they hold only 14 percent of total loans in the sector, according to Bangladesh Bank data.