Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has started a study on spread calculation aiming to explore plausible factors responsible for the on-going high level of the spread in the country’s banking sector, officials said.
A six-member team has already been formed to conduct the study.
“We’ll discuss about calculation method of interest rate spread with chief executive officers of commercial banks if necessary,” a senior member of the team said, adding that the team has been asked to submit a preliminary draft by April 30 this year, he added.
The central bank has taken the latest move aiming to bring down the spread below 5.0 per cent from the existing level of 5.05 per cent.
Currently, the spread is calculated as difference between weighted average of lending and deposits rates.
Some senior bankers of different commercial banks, however, disagreed with the BB’s method about calculating the spread, saying that in reality, this would be lower than the central bank’s estimation.
“The interest rate on borrowings from the inter-bank market as well as the BB through repurchase agreement (REPO) and special REPO are not considered while calculating the interest rate-spread by the central bank,” the banker noted.
He also said the BB does not consider the return on other investments like government securities. “The BB is now calculating NIM (net interest margin) in the name of spread.”
They also said that the banks generally compute their spread as the difference between their cost of funds and return on investment, generally known as earnings.
Official data shows that the spread was more than 5.0 per cent during July 2011-February 2013 period.
Earlier on January 22 last year, the Bangladesh Bank (BB) asked the commercial banks to keep interest-rate spread at less than 5.0 per cent, barring operations relating to credit cards and small and medium enterprises (SMEs).
BBN/SI/AD-08Apr13-11:35 am (BST)
