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Interest rate spread slightly low in April

Siddique Islam | Published: May 25, 2019 10:03:56 | Updated: June 14, 2019 12:12:08


Picture used for illustrative purpose (Collected)

The overall interest rate spread in the country's banking sector narrowed down slightly as commercial banks increased deposit rates while lending rates fell, officials said.

The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.04 per cent in April 2019 from 4.15 per cent of the previous month, according to the central bank's latest statistics.

Actually, the spread fell slightly in the month of April after it remained unchanged at 4.15 in three consecutive months from January to March this calendar year.

The weighted average rate on deposits rose to 5.42 per cent in April from 5.35 per cent a month before while interest rates on lending came down to 9.46 per cent from 9.50 per cent.

Senior bankers, however, predicated that the upward trend in interest rates on deposits may continue this month ahead of the Eid-ul-Fitr festival.

Complying with the policy on offshore banking operation will also put pressure on liquidity in the near future, they added.

As per the policy, issued by the central bank on February 25 last, the banks will have to keep a deposit an amount equivalent to 13 per cent of their total liabilities with the BB as statutory liquidity ratio (SLR) and 5.50 per cent as cash reserve requirement (CRR) from July 01.

Impact on the government's recent directive relating to interest rates on lending and deposit will depend on its implementation, according to the senior bankers.

"It will help reduce interest rates on lending if the policy is implemented properly," Mehmood Husain, Managing Director and Chief Executive Officer (CEO) of NRB Bank Limited, told the FE on Friday. He also said some banks are now trying to increase their lending rates for bringing adjustment with higher interest rates on deposits in recent months.

Earlier on May 20 last, the Financial Institutions Division of the Ministry of Finance issued a notification, asking the state-owned enterprises (SoEs) to deposit their funds with the banks and selected non-banking financial institutions (NBFIs) at a maximum interest rate of 6.0 per cent.

On the other hand, banks that failed to bring down their interest rates on lending to 9.0 per cent will not be eligible for receiving government's Annual Development Programme (ADP) fund.

They will also not be able to get savings or funds from autonomous and semi-autonomous government institutions, the notification added.

"We'll monitor the issue closely," a senior official of the Bangladesh Bank (BB) told the FE while replying to a query about the implementation of the directive.

Talking to the FE, a senior executive of a leading private commercial bank (PCB) said some banks are still offering higher rates on deposits to attract both individual and institutional depositors.

The interest rates on term deposits are now hovering between 9.0 per cent and 11.50 per cent, according to the private banker.

The spread, being maintained by 12 commercial banks, out of 57, still remains high. It ranges between over 5.0 per cent and 8.31 per cent.

Average spread with the state-owned commercial banks (SoCBs) was 2.26 per cent in April 2019. The figure was 4.21 per cent for the PCBs.

It was 6.68 per cent with the foreign commercial banks (FCBs), and 1.89 per cent with the specialised banks (SBs), the BB data showed.

Excluding consumer finance and credit card, the interest spread of all banks also came down to 3.95 per cent in April from 4.06 per cent a month back.

siddique.islam@gmail.com

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