Transactions in a state-owned bank is going on at Motijheel, the commercial hub of Bangladesh. BBN file photo

Dhaka, Bangladesh (BBN)– Overall interest rate spread in the banking sector of Bangladesh decreased further in November, although the banks increased their interest rates more on deposit than lending.

The interest rates on deposit returned to an upward trend in November 2018 after maintaining a declining trend in the previous three consecutive months, officials said.

The weighted average rate on deposits rose to 5.30 per cent in November from 5.25 per cent a month before, while interest on lending stood at 9.50 per cent from 9.47 per cent, according to the Bangladesh Bank’s (BB) latest statistics, released on Tuesday.

The weighted average rate on deposits was 5.27 per cent and 5.36 per cent in September and August respectively.
On the other hand, the weighted average spread between lending and deposit rates came down to 4.20 per cent in November 2018 from 4.22 per cent in the previous month. The spread was 4.27 per cent in September.

The spread, being maintained by at least 14 commercial banks, out of 57, still remains high. It ranges between more than 5.0 per cent and 8.52 per cent.

Average spread with the state-owned commercial banks (SoCBs) was 2.31 per cent in November 2018, and 4.41 per cent with the private commercial banks (PCBs). It was 6.82 per cent with the foreign commercial banks (FCBs), and 2.31 per cent with the specialised banks (SBs).

Excluding consumer finance and credit card, the spread of all banks came down to 4.12 per cent in November 2018 from 4.14 per cent in the previous month, the BB data showed.

Talking to the BBN, senior bankers said the rising trend of interest rates on deposit may continue in the coming months to meet the growing demand for fresh funds to comply with the BB’s revised advance-deposit ratio (ADR) rules.

The ADR has been re-fixed at 83.50 per cent for all the conventional banks and 89 per cent for the Shariah-based Islamic banks. The existing ratios are 85 per cent and 90 per cent respectively.

The banks having ADR above the re-fixed limit have been asked to implement the revised limit by March 31, 2019.
“Most of the banks will have to mobilize deposit to comply with the revised ADR limit by the end of this March,” a senior executive of a leading PCB told the BBN in Dhaka.

He also said the private sector credit growth may pick up in the coming months after the new government takes office.

“Most of the banks are now offering higher rates on deposit to attract both individual and institutional depositors,” the senior banker explained.

The interest rates on term deposit are now hovering between 6.0 per cent and 9.50 per cent, according to the private banker.