Dhaka, Bangladesh (BBN) - The interest rate spread in the banking sector came down to below 5.0 percent in October last because of lower credit demand caused by the ongoing political uncertainty, bankers said.
The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.95 percent in October 2013 from 5.01 percent in the previous month, according to the central bank statistics.
“Some entrepreneurs are now maintaining a ‘go-slow’ policy for investing their fresh funds in new ventures due mainly to the political turmoil centring the next parliamentary election,” a senior official of a leading private commercial bank (PCB) said.
He also said most of banks have already slashed interest rates on lending aiming to expedite their credit flow to the private sector in line with the Bangladesh Bank (BB) advice. “The spread may fall further in the coming months if the confrontational political situation continues.”
Earlier on January 22 last year, the central bank asked the commercial banks to keep interest rate spread at less than 5.0 percent, barring operations relating to credit cards and small and medium enterprises (SMEs).
The weighted average rate on lending came down to 13.42 percent in October, while the interest rates on deposits were paid at 8.47 per cent.
In September last, the average lending rate was on 13.51 percent and average deposit rate 8.50 percent.
The spread being maintained by at least 23 commercial banks out of 55 still ranges between more than 5.0 percent and 10.24 percent, while the average spread of the four government-owned commercial banks (SoCBs) is 3.25 per cent, PCBs 5.20 per cent, foreign commercial banks (FCBs) 8.48 per cent and specialised banks (SBs) 2.88 per cent, the BB data showed.
The BB asked the chief executive officers of all banks at a meeting on August 25 last to bring down the interest rate spread below 5.0 per cent immediately.
The country’s business community earlier urged the BB governor to take initiatives to reduce the lending rates to facilitate business activities, particularly to augment industrialisation in the country.
BBN/SSR/AD-04Nov13-9:10 pm (BST)