Dhaka, Bangladesh (BBN)- Declining trend of the interest rate spread in the country’s banking sector continued until August following the central bank’s continuing persuasion, officials said.
“The central bank expects that the interest rate spread between deposit and lending will decrease further in the coming months,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
The weighted average spread between lending and deposit rates offered by the commercial banks came down to 5.01 percent in August 2013 from 5.02 percent in the previous month. It was 5.13 percent in June last.
The central banker also said the BB is advising the banks to reduce the spread through decreasing the interest rates on lending, particularly for productive sectors that would facilitate the country’s business activities.
“We’re now slashing interest rates on lending on case-to-case basis particularly for corporate clients,” a senior official of a leading commercial bank said while replying to a query.
He also said the banks may reduce interest rates on lending in the coming months because of higher deposit growth. “Some banks are planning to reduce their interest rates on lending in general aiming to boost investment in different productive sectors in line with the BB’s advice.
The weighted average rate on lending stood at 13.56 per cent in August while the interest rates on deposits were paid at 8.55 per cent, the BB data showed.
In July last, the average lending rate was on 13.63 per cent and average deposit rate 8.61 per cent.
The spread being maintained by at least 24 commercial banks out of 53 still ranges between more than 5.0 and 10.12, while the average spread of the four government-owned commercial banks (SoCBs) is 3.34 per cent, private commercial banks (PCBs) 5.26 per cent, foreign commercial banks (FCBs) 8.67 per cent and specialised banks (SBs) 2.70 per cent.
Earlier on August 25 last, the central bank asked the chief executive officers of all banks at a meeting to bring down the interest rate spread below 5.0 per cent immediately from the level of 5.13 per cent.
Earlier on January 22 last year, the 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).
The country’s business community earlier urged the BB governor to take initiatives to reduce the lending rates to facilitate business activities, particularly to augment industrialisation in the country.
BBN/SSR/AD-02Oct13-10:24 am (BST)