Interest rate spread drops to 4pt

Staff Correspondent | Published: 00:00, Oct 09,2019

 
 

A file photo shows people conducting banking activities at a branch of a bank in Dhaka. The overall weighted average interest rate spread in the country’s banking sector has come down to 4 percentage points amid a deposit rate rise triggered by liquidity crisis in the sector. — New Age photo

The overall weighted average interest rate spread in the country’s banking sector has come down to 4 percentage points amid a deposit rate rise triggered by liquidity crisis in the sector.

The weighted average interest rate is the difference between the weighted average lending rate and the weighted average deposit rate of banks.

Although the overall spread in the banking sector dropped, 30 banks still have the spread above the Bangladesh Bank-set limit of 4 percentage points.

However, the spread in 36 banks was above 4 percentage points in March last year when the Bangladesh Bank reduced it by 1 percentage points from 5 percentage points as part of the government’s move to bring down the lending and deposit rates to 9 per cent and 6 per cent respectively.

The average spread in the private commercial banks dropped to 4.12 percentage points on Monday from 4.42 percentage points in January this year.

The average interest rate spread in the state-owned banks fell marginally to 2.19 percentage points from 2.22 percentage points.

In the specialised banks, the average spread dropped to 1.84 percentage points from 1.85 percentage points.

The average spread in the foreign commercial banks, however, increased to 6.73 percentage points on Monday from 6.22 percentage points in January this year.

Association of Bankers, Bangladesh chairman Syed Mahbubur Rahman told New Age on Tuesday, ‘Although the banks were forced to increase deposit rate, there was no scope for increasing the lending rate. As a result, the weighted average interest rate spread in the banking sector dropped to 4 percentage points.’

Besides, a rise in the non-performing loans in the country’s banking sector might be another reason for the decrease in spread, he said.

‘However, the rate has come down to the BB-set limit,’ he added.

Around 20 banks have been hunting for deposits aggressively since January last year when the BB instructed to bring down advance deposit rate to 83.5 per cent.

Due to the instruction, many banks had offered even more than 10 per cent interest rate to attract depositors, contradicting the government move to bring down deposit rate to 6 per cent.

Amid unstable market condition, the central bank thrice extended the deadline for the ADR adjustment — the latest to September this year.

Taking the market situation into consideration, the BB finally restored the earlier ADR, stating that the liquidity situation in the banking sector improved in recent times and created scope for issuing loans by banks.

However, the private sector credit growth in August this year dropped to 10.68 per cent, the lowest since September, 2010 when it was 6.09 per cent.

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