Banks to be asked for cut in interest rate spread

Dhaka, Bangladesh (BBN) – The central bank of Bangladesh is going to ask the commercial banks to take necessary measures for bringing down the interest rate spread below 5.0 percent from the existing 5.41 percent, officials said.

An instruction is likely to be made during a regular meeting of bankers to be held at the central bank in the capital Dhaka on Sunday with Bangladesh Bank (BB) Governor Atiur Rahman in the chair.

The BB has taken the move following the commercial banks’ noncompliance with its instruction relating to the spread between lending and deposit rates in the recent months.

“The central bank may take a hard line on bringing down the interest rate spread below 5.0 percent after discussing the issue with the bankers at the meeting,” a BB senior official said.

The central bank is persuading the bankers continuously to bring down the spread below 5.0 percent, the central banker said, adding that the weighted average interest-rate spread might come down further in the coming months.

The interest-rate spread of 28 commercial banks, out of a total of 47, was more than 5.0 percent in the month of November last year against the permissible limit of a single digit at a lower level i.e. below 5.0 percent.

The weighted average spread between lending and deposit rates of banks came down to 5.41 per cent in November last from 5.42 per cent in the previous month, according to the central bank statistics.

The spread, being maintained by 28 banks, varied between over 5.0 percent and 11.73 percent, while the average spread of the state-owned four commercial banks was 4.89 percent, private commercial banks 5.35 percent, foreign commercial banks 8.83 percent and specialised banks 2.85 percent.

The weighted average rate on lending stood at 13.94 percent in November 2012, when the average rate on deposits was 8.53 percent, the BB data showed.

Earlier on January 22 last year, the central bank instructed the commercial banks to keep the interest-rate spread at less than 5.0 per cent, barring operations relating to credit cards and small and medium enterprises (SMEs).

 

BBN/SSR/AD-25Jan13-2:10 pm (BST)