Banks’ interest rate spread rises to 3.05pts

HM Murtuza | Published: 22:05, May 11,2021

 
 

The overall weighted average interest rate spread in the country’s banking sector rose to 3.05 percentage points in March after remaining below 3 percentage points for several months after the implementation of 9-per cent lending rate.

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

The spread increased in March as banks reduced interest rates of their deposit products drastically to raise their profit margin, according to the latest Bangladesh Bank data.

In May 2020, the overall weighted average interest rate spread in banks dropped to 2.94 percentage points for the first time in Bangladesh after the implementation of the lending rate ceiling in April 2020.

The central bank directed banks to implement the ceiling following an instruction from the government high-ups.

Before April 2020, the overall weighted average interest rate spread was 4.07 per cent.

In April 2020, the first month of the lending rate ceiling implementation, the spread was 2.92 percentage points.

In January 2019, the overall weighted average interest rate spread was 4.42 percentage points.

Officials of the central bank said that the interest rate spread increased as the banks managed to reduce their cost against deposits and were trying to restore their profit margin as it was before the ceiling enforcement.

Even though the government-set lending rate ceiling was 9 per cent, banks were offering loans to their customers at as low as 8 per cent rate amid a demand plunge.

The private sector credit growth dropped to 8.79 per cent in March.

Amid the plunge in credit demand, many banks were not taking deposits from customers at above 2-4 per cent interest that helped the interest rate spread rise above 3 per cent in March.

Although the overall interest rate spread dropped significantly, 15 banks still made a profit margin or spread above the BB-set limit of 4 percentage points in March.

The banks which had the weighted average interest rate above 4 per cent in March are Standard Chartered Bank, State Bank of India, Citibank NA, Woori Bank, the Hong Kong and Shanghai Banking Corporation, Bank Al-Falah, The City Bank, United Commercial Bank, Shimanto Bank, Eastern Bank, Prime Bank, Dutch-Bangla Bank, Bank Asia, Trust Bank and BRAC Bank.

Of the banks, Standard Chartered Bank and Dutch-Bangla Bank maintained the overall weighted average interest rate of around 7 per cent.

Standard Chartered Bank maintained the highest overall spread of 6.98 per cent as its weighted average deposit rate was 0.76 per cent against weighted average lending rate of 7.74 per cent.

Dutch-Bangla Bank maintained the overall spread of 6.41 per cent as its weighted average deposit rate was 1.71 per cent against weighted average lending rate of 8.12 per cent.

In March 2018, the BB reduced the spread 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.

Even after imposing the cap on the spread at 4 percentage points, the average spread in the foreign commercial banks remained high at 5.54 percentage points based on a weighted average deposit and advance rate of 1.16 per cent and 6.7 per cent respectively in March, 2021.

In March, the spread in the private commercial banks came down to 3.18 percentage points as their weighted average deposit and lending rate dropped to 4.54 per cent and 7.72 per cent respectively.

In the state-owned banks, the rate dropped to 2.04 percentage points with the weighted average deposit and lending rates standing at 4.47 percentage points and 6.51 percentage points respectively.

In the specialised banks, the weighted average deposit rate was 5.69 per cent and the lending rate was 7.45 per cent, taking the spread to 1.76 percentage points.

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