Dhaka, Bangladesh (BBN) - Average interest rates on lending came down to single-digit levels in November for the first time in Bangladesh following constant persuasion of bankers by the central bank, officials said.
The weighted average interest rates on lending fell to 9.94 per cent in November last from 10.03 per cent in the previous month while interest rates on deposits also came down to 5.29 per cent from 5.33 per cent, according to the central bank latest statistics.
The Bangladesh Bank (BB) began logging the weighted average interest rates on lending and deposit in 1975 and the interest rate was never seen declining below 10 per cent since then, they added.
The BB data showed that the weighted average rate on lending stood at 11.27 per cent in 2015, 12.46 per cent in 2014, 13.42 per cent in 2013, 13.77 per cent in 2012, 12.80 in 2011, 11.34 in 2010, 11.51 in 2009, 12.40 in 2008 and 12.78 in 2007.
However, senior bankers said they were forced to lower the lending rates due to a sluggish credit demand from the businesspeople.
“Most of the banks is slashing the interest rates on lending to attract clients particularly corporate ones for boosting their business,” a senior official of a leading private commercial bank (PCB) told BBN in Dhaka.
Due to the lower credit demand from the businesspeople, the banks are now having sufficient excess liquidity resulting that the banks also cut their interest rates on deposit, he explained.
On the other hand, overall interest-rate spread in the country’s banking sector fell slightly further in November as the commercial banks slashed their interest rates on lending more than that of deposits.
The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.65 per cent in November 2016 from 4.70 per cent in the previous month.
“We’re now working to bring down the spread to nearly 4.0 per cent in the near future from the existing level,” SK Sur Chowdhury, deputy governor of the BB, told BBN in Dhaka.
He also expects that the spread will decrease in the coming months, as BB is persuading the banks continuously.
Talking to BBN, another BB official said the central bank has already advised the banks to reduce their interest rate spread through improving efficiency as well as profitability instead of slashing interest rates on deposits.
The spread being maintained by at least 17 commercial banks out of 56 still ranges as high as between more than 5.0 per cent and 8.60 per cent.
Average spread with the six state-owned commercial banks (SoCBs) is 3.90 per cent, PCBs 4.77 per cent, foreign commercial banks (FCBs) 6.58 per cent and specialised banks (SBs) 2.41 per cent.
The BB data also showed that excluding consumer finance and credit card, the spread of all banks came down to 4.55 in November 2016 from 4.60 per cent a month ago. It was 4.66 per cent in September 2016.
BBN/SSR/AD