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

Dhaka, Bangladesh (BBN)– Overall interest rate spread in the country’s banking sector decreased slightly in January due to increase in deposit rate more than that of lending, officials said.

The weighted average spread between lending and deposit rates came down to 4.41 per cent in January 2018 from 4.44 per cent in the previous month, according to the central bank’s latest statistics. It was 4.72 per cent in January 2017.

“The banks is now offering higher interest rates on deposit to collect more funds for minimising the gap between deposit and credit growths in the near future,” a senior official of the Bangladesh Bank (BB) told the BBN.

On the other hand, the wide gap between the credit and deposit growth continued in 2017 as many people with surplus funds stayed away from banks due to lower interest rates.

The deposit growth had been on a slide, falling from 13.13 per cent on December 31, 2016 to 10.94 per cent on June 30, 2017 and 10.62 per cent on December 31 last.

On the other hand, credits climbed to 18.10 per cent as on December 31 from 15.98 per cent on June 30 last calendar year. It was 15.32 per cent as on December 31, 2016.

The BB official also said the central bank has already advised the banks to reduce their interest rate spread through improving efficiency instead of slashing interest rates on deposit.

The weighted average rates on deposits rose to 5.01 per cent in January last from 4.91 per cent in the previous month while interest on lending stood at 9.42 per cent against 9.35 per cent, the BB data showed.

“We’re now working to keep the spread within 4.0 per cent in the near future,” the central banker noted.
Senior bankers, however, expect that the rising trend of interest rates on deposit may continue in the coming months.

They also said that the banks are also increasing the interest rates on lending to minimise their cost of funds.
The spread being maintained by at 10 commercial banks, out of 57, still remains high. It ranges between more than 5.0 per cent and 8.23 per cent.

Average spread with the state-owned commercial banks (SoCBs) was 4.03 per cent, private commercial banks (PCBs) 4.31 per cent, foreign commercial banks (FCBs) 6.40 per cent, and specialised banks (SBs) 2.85 per cent in January 2018.

Excluding consumer finance and credit card, the spread of all banks also came down to 4.34 per cent in January 2018 from 4.35 per cent in December 2017.