Weighted average lending rate of 14 banks dropped below 7 per cent in December 2020 due mainly to the setting of lending rate ceiling at 9 per cent by the Bangladesh Bank to support the industrial expansion.
BB data showed that the weighted average lending rate of only six banks was below 7 per cent before the implementation of lending rate ceiling.
In February 2020, the central bank issued a circular, setting April 1 of the year as the effective date to implement the 9-per cent ceiling on lending rate.
Besides, the injection of local money in the country’s banking system by the way of purchasing US dollars from the local market has resulted in excess liquidity in the banking system, said bankers.
They said that the implementation of expansionary monetary policy to tackle the coronavirus-induced economic fallout also played a vital role in the flow of a huge liquidity to the banks.
Even though the flow of liquidity was high, the disbursement of credit dropped sharply that resulted in the piling up of idle money in the banks, the bankers said.
The BB’s latest data showed that the volume of excess liquidity in the banking sector stood at Tk 1,95,166 crore at the end of November 2020.
For instance, the weighted average lending rate of Southeast Bank dropped to 6.84 per cent in December 2020 from 10.03 per cent a year ago.
Asked about the reason for the sharp decline, Southeast Bank managing director M Kamal Hossain told New Age, ‘It’s mainly because of the enforcement of 9 per cent ceiling on lending rate.’
Before the implementation of 9 per cent ceiling on advances, Southeast Bank was issuing credit at 13-14 per cent and its weighted average rate was around 10 per cent at that time, he said, adding that the weighted average lending rate dropped to below 7 per cent afterwards.
The weighted average lending rate of five state-owned commercial banks — Janata, Rupali, Sonali, BASIC and Bangladesh Development Bank — was also below 7 per cent in December 2020.
Bankers said that non-imposition of interest on the defaulted loans could be another reason for the weighted average lending rate going below 7 per cent.
Apart from the state owned commercial banks, the weighted average lending rate of Islami Bank Bangladesh, National Bank, Bangladesh Commerce Bank, Padma Bank, ICB Islamic Bank, Citi Bank NA, National Bank of Pakistan and HSBC also dropped below 7 per cent.
Along with the implementation of lending rate, the central bank to offset the economic shock of coronavirus has taken a number of initiatives to inject additional money into the country’s economic system through banks.
In doing so, the BB slashed the repurchase agreement (repo) rate, which is the rate that is used to signal the central bank’s monetary policy stance, by 50 basis points to 4.75 per cent.
Before the COVID19 outbreak began in March, it was 6 per cent.
The BB also cut the reverse repo rate by 75 basis points to 4 per cent and the bank rate by 100 basis points to 4 per cent.
In March 2020, the BB reduced the cash reserve ratio and credit-deposit ratio.
With the falling lending rate, the overall weighted average interest rate spread in banks dropped to 2.94 percentage points in May from 4.07 percentage points in March of the year 2020. The spread, however, increased a bit to 3.02 per cent in December 2020.
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