Transactions in a state-owned bank is going on at Motijheel, the commercial hub of Bangladesh. BBN file photo

Dhaka, Bangladesh (BBN)– The overall interest rate spread in the country’s banking sector narrowed down slightly in April as commercial banks increased interest on deposits while lending rates fell.

The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.04 per cent in April 2019 from 4.15 per cent of the previous month, according to the central bank’s latest statistics.

Actually, the spread fell slightly in the month of April after it remained unchanged at 4.15 in three consecutive months from January to March this calendar year.

On the other hand, the weighted average rate on deposits rose to 5.42 per cent in April from 5.35 per cent a month before while interest rates on lending came down to 9.46 per cent from 9.50 per cent.

Senior bankers, however, predicated that the upward trend in interest rates on deposits may continue this month ahead of the Eid-ul-Fitr festival.

Complying with the policy on offshore banking operation will also put pressure on liquidity in the near future, they added.

As per the policy, issued by the central bank on February 25 last, the banks will have to keep 13 per cent of fund inform of liquidity or securities or others of their total liabilities as statutory liquidity ratio (SLR) and 5.50 per cent as cash reserve requirement (CRR) from July 01.

Impact on the government’s recent directive relating to interest rates on lending and deposit will depend on its implementation, the senior bankers added.

Talking to the BBN, Mehmood Husain, Managing Director and Chief Executive Officer (CEO) of NRB Bank Limited, said it will help reduce interest rates on lending if the policy is implemented properly.

The senior banker also said some banks are now trying to increase their lending rates for bringing adjustment with higher interest rates on deposits in recent months.

Earlier on May 20 last, Financial Institutions Division of the Ministry of Finance issued a notification, asking the state-owned enterprises (SoEs) to deposit their funds with the banks and selected non-banking financial institutions (NBFIs) at maximum 6.0 per cent.

On the other hand, banks that failed to bring down their interest rates on lending to 9.0 per cent will not be eligible for receiving government’s annual development programme fund.

They will also not be able to get savings or funds from autonomous and semi-autonomous government institutions, the notification added.

“We’ll monitor the issue closely,” a senior official of the Bangladesh Bank (BB) said while replying to a query about the implementation of the directive.

Some banks are still offering higher rates on deposits to attract both individual and institutional depositors, a senior executive of private commercial bank (PCB) said.

The interest rates on term deposits are now hovering between 9.0 per cent and 11.50 per cent, the private banker added.

The spread, being maintained by 12 commercial banks, out of 57, still remains high. It ranges between over 5.0 per cent and 8.31 per cent.

Average spread with the state-owned commercial banks (SoCBs) was 2.26 per cent in April 2019, and 4.21 per cent with the PCBs.

It was 6.68 per cent with the foreign commercial banks (FCBs), and 1.89 per cent with the specialised banks (SBs), the BB data showed.

Excluding consumer finance and credit card, the spread of all banks also came down to 3.95 per cent in April from 4.06 per cent a month ago.

Bangladesh’s business community earlier urged the BB governor as well as the government to take initiatives to reduce the lending rates to facilitate business activities, particularly to augment industrialisation in the country.