Dhaka, Bangladesh (BBN)- A number of commercial banks raised the interest rates on deposit and reduced on lending in the current month aiming to narrow the interest rate spread.

At least seven commercial banks increased the interest rates on deposits in September to encourage the people to keep their money in the banks.

The banks have raised the interest rates on deposit by 0.25 to 3.0 percentage points to mobilize fresh funds from general depositors, officials said.

On the other hand, at least four out of 48 banks have reduced the interest rates on lending this month in line with the commitment made by the Bangladesh Association of Banks (BAB) to the central bank.

On March 3 this year, the BAB confirmed the central bank that they would reduce interest rates on industrial term loans to 14.75 per cent from the existing 16 per cent while the interest rates for the productive sector will be brought down to 14.50 per cent from existing 15.50 per cent.

The banks have slashed their interest rates by 0.75 to 1.75 percentage points for mainly term loans and working capital, they added.

“We expect that the spread between the interest rates on lending and deposit may slightly come down during July-September period of this year,” a senior official of the Bangladesh Bank (BB), the country’s central bank, told BBN in Dhaka on Monday.

The weighted average spread between lending and deposit rates in the country’s banking sector came down to 5.34 per cent in June from 5.75 per cent in March this year, the BB’s data showed.

Treasury officials of the commercial banks, however, expect the interest rates on deposits to go up further strengthening the credit deposit ratio position.

“Some banks will have to raise their interest rates on deposits aiming to improve their credit deposit ratio position by mobilizing fresh funds from public,” a senior treasury official of a private commercial bank told BBN in the capital, Dhaka.

The country’s commercial banks currently offer interest in the range between 5.25 per cent and 13.50 per cent on fixed deposit schemes while the rates for saving accounts varies between 2.50 per cent and 8.00 per cent, according to the central bank statistics, released on Monday.

Bankers and experts, however, said the real interest rate in the country is still low and, to some extent, negative because of high inflation rate that was 10.04 cent in June last. As a result, the banks are raising the interest rates on deposit to attract more funds from their clients.

The country’s consumer price index (CPI) inflation reached at 10.82 per cent on the point-to-point basis in July from 10.04 per cent in June 2008.

The banks’ lending rates on working capital to large and medium scale industries range between 11 per cent and 16 per cent and for small industries between 10.50 per cent and 18 per cent, the data showed.

Interest rates on housing loans range between 10 per cent and 16.50 per cent and consumer credit between 10.50 per cent and 19.50 per cent.

BBN/SI/SS/AD-23September08-12:14PM (BST)