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The banking sector is feeling the strain as the gap between lending and deposit rates, a key measure of profitability, narrowed to a 17-month low in September.
The squeeze comes as banks face rising deposit costs and sluggish lending growth, leaving many struggling to maintain margins.
Bankers and central bank officials say the trend reflects growing stress across the industry, where profits are being eroded by higher non-performing loans (NPLs) and limited credit demand in a slowing economy.
According to Bangladesh Bank data, the weighted average deposit rate in September 2025 stood at 6.42 per cent, while the average lending rate was 12.16 per cent, bringing the spread down to 5.74 per cent.
This was the lowest since April 2024, when the spread had dipped to 5.23 per cent with deposit and lending rates at 5.30 per cent and 10.53 per cent respectively.
The spread, also known as the net interest margin (NIM), represents the difference between what banks pay on deposits and what they earn on loans.
A senior Bangladesh Bank official, requesting anonymity, said some liquidity-strapped banks had recently offered higher deposit rates to attract funds, which contributed to the shrinking spread.
"The yield on treasury bills and bonds began falling from late August, which is another reason for the decline. The downturn continued in October, so we expect an even lower spread when new data is released," the official said.
City Bank PLC's managing director and CEO, Masrur Arefin, said banks had been offering attractive deposit rates earlier this year to invest in government securities, when yields were above 12 per cent.
"Now that the yields on treasury bills and bonds have dropped sharply, the impact is showing up in the reduced spread," he explained.
"The banks set their deposit rates based on the then-higher government security yields, not with lending expansion in mind, given the economic slowdown," said Mr Arefin, who also chairs the Association of Bankers, Bangladesh (ABB).
Mutual Trust Bank PLC's managing director and CEO, Syed Mahbubur Rahman, added that the rising cost of deposits was further aggravated by the burden of NPLs.
"Higher non-performing loans increase funding costs and directly hit profitability," he said.
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