The Financial Express

Interest rate spread drops slightly to 2.89pc in June

Banks cut more on lending

| Updated: August 11, 2020 21:57:10

Evaly and Fianancial Express Evaly and Fianancial Express
Picture used for representational purpose - Collected Picture used for representational purpose - Collected

Interest rate spread in the country's banking system fell slightly in June, as banks slashed interest rates on lending more than on deposit.

The weighted average spread between lending and deposit rates, offered by the banks, came down to 2.89 per cent in June 2020 from 2.94 per cent in the previous month, according to the Bangladesh Bank's (BB) latest statistics.

The weighted average rate on deposit fell to 5.06 per cent in June from 5.24 per cent a month before, and interest on lending dropped to 7.95 per cent from 8.18 per cent, the BB data showed.

Senior bankers, however, predicted that the interest rate spread may improve gradually in the near future following adjustment of the interest rates with the market.

Some banks have already slashed their interest rate on deposit, particularly the term ones, because of higher inflow of liquidity in the market, they added.

Currently, most of the banks, particularly the private commercial banks (PCBs), are trying to reduce their cost of funds through slashing the interest rates on deposit, according to the bankers.

Talking to the FE, Md Abdul Halim Chowdhury, managing director (MD) and chief executive officer (CEO) of Pubali Bank Limited, said the interest rate spread may gradually increase in the coming months following maturity of the FDRs (fixed deposit receipts) that were collected earlier by offering higher rates.

"The interest rates on lending decreased more than on deposit, as low-cost refinancing funds are available in the banking system," a senior executive of a leading PCB told the FE while explaining the latest trend of interest rates.

Meanwhile, average spread with the state-owned commercial banks (SoCBs) was 2.33 per cent in June 2020, the PCBs 2.88 per cent, the foreign commercial banks (FCBs) 5.30 per cent, and the specialised banks (SBs) 2.10 per cent.

In April 2020, the spread came down to 2.92 per cent from 4.07 per cent in the previous month following implementation of the single-digit interest rate in the banking sector.

[email protected]

Share if you like