Interest rates on banks’ lending products increased in May after 29 months of fall as the private sector credit growth has been rising in recent months, said Bangladesh Bank officials and an expert.
The weighted average interest on lending rose to 9.66 per cent in May from 9.62 per cent in April this year.
A BB official told New Age on Thursday that banks had increased their lending rates after a long pause due to an increased credit demand from the businesspeople in the last few months.
He said that the majority of banks had recently cut their rates of interest on lending, whereas they maintained cutting the deposit rates.
Due to the higher credit demand from the businesspeople, excess liquidity holding by banks has recently decreased, which has forced them (banks) to increase the interest rates for their lending products.
Former interim government adviser Mirza Azizul Islam told New Age on Friday that the weighted average interest rates on lending had increased in May due to a higher credit growth in the private sector.
‘The common people are now reluctant to keep deposits with banks due to a lower interest rate. In many cases, the interest rates on deposit products decreased below the inflation rate,’ he said.
Against the backdrop, banks may think to increase their deposit rates in the months to come to encourage depositors, he said.
As part of the move, banks have increased the lending rates in advance, he said.
The country’s year-on-year private sector credit growth stood at 16 per cent in May against the central bank’s monetary target of 16.50 per cent for the January-June period of this year.
The weighted average interest rate on lending was 9.70 per cent in March, 9.77 in February, 9.85 per cent in January of 2017, 9.93 per cent in December, 9.94 per cent in November, 10.03 per cent in October, 10.15 per cent in September, 10.24 per cent in August, 10.32 per cent in July, 10.39 per cent in June, 10.57 per cent in May, 10.64 per cent in April, 10.78 per cent in March, 10.91 per cent in February and 11.05 per cent in January of 2016.
The rate had declined throughout in 2015. From 12.32 per cent in January 2015, it had dropped to 11.18 per cent in December 2015.
The weighted average interest rate on deposit decreased to 4.93 per cent in May from 4.97 per cent in April this year.
The overall interest rate spread, the gap between the interest rates for credit and deposit, stood at 4.73 percentage points in May.
The BB data showed in May the weighted average interest rate on lending stood at 8.71 per cent at the state-owned commercial banks, 9.07 per cent at the specialised development banks, 7.85 per cent at the foreign commercial banks, and 10.03 per cent at the private commercial banks.
The weighted average interest rate on deposit in May stood at 4.69 per cent at the state-owned commercial banks, 5.97 per cent at the specialised development banks, 4.93 per cent at the private commercial banks, and 1.59 per cent at the foreign commercial banks.
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