Dhaka, Bangladesh (BBN)– Falling trend of the interest rate on deposits pushed up the country’s banking sector interest rate spread in November while lending rates remained unchanged, bankers said.
They also attributed that the interested rate on deposits may fall further in the coming months if the ongoing political uncertainty continues.
The weighted average rates on deposits came down to 7.32 per cent in November last from 7.40 per cent in the previous month while interest rates on lending remained unchanged at 12.49 per cent, according to the central bank statistics.
“We want to reduce our cost of fund through slashing expenditure on deposits,” a senior official of a leading private commercial bank (PCB) told BBN in Dhaka.
 He also said the banks are compelled to minimise their cost of funds because they are suffering excess liquidity pressure in the recent months.
“The interest rate on deposits will go up only after improving the country’s overall investment situation,” the private banker observed.
The deposits cover tenure between three months and 12 months and are prime sources of the fixed deposits which have contributed around 90 per cent of total bank deposits.
The interest rate on fixed deposits came down to around 8.0 per cent in November last from 11per cent a year ago, another banker said.
He also said most of banks are now offer lower interest rates on lending only for priority customers who now prefer foreign currency loan from overseas sources due mainly to lower interest rate.
 “We expect that the interest rates on lending may fall in the coming months if the competition among the banks is going on,” he explained.
Meanwhile, the excess liquidity with the banks has started a declining trend recently because of creating credit demand in various sectors including trade and commerce.

The overall excess liquidity with the commercial banks came down to around BDT 1.09 trillion as of second weeks of November last from BDT 1.32 trillion as of first week of September 2014, according to a senior official of the Bangladesh Bank (BB).

 
The central banker also said major portion of the funds has been invested in the risk-free government securities. “The excess liquidity with the banks may rise in the coming months if the political turmoil continues,”
He also said excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around BDT 32 billion.
On the other hand, the weighted average spread between lending and deposit rates offered by the commercial banks rose to 5.17 per cent in November 2014 from 5.09 per cent in the previous month as the interest rate on deposit decreased more than that of lending.
The spread being maintained by at least 30 commercial banks out of 56 still ranges between more than 5.0 and 10.56, while the average spread of the four government-owned commercial banks (SoCBs) is 3.59 per cent, PCBs 5.45 per cent, foreign commercial banks (FCBs) 8.11 per cent and specialised banks (SBs) 3.34 per cent.
Earlier on January 22, 2012, the central bank of Bangladesh 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).
Bangladesh’s business community earlier urged the central bank governor to take initiatives to reduce the lending rates to facilitate business activities, particularly to augment industrialisation in the country.

BBN/SSR/AD-23Jan15-2:48 pm (BST)