Interest rate spread remains high despite BB close monitoring

Siddique Islam | Published: May 01, 2019 10:09:16 | Updated: May 21, 2019 14:09:08

Interest rate spread in the country's banking sector remained unchanged in March as the commercial banks increased their interest rates equally on both deposit and lending, officials said.

The weighted average spread between lending and deposit rates offered by the commercial banks remained unchanged at 4.15 per cent in March 2019 from previous level, according to the central bank's latest statistics.

Actually, the spread remained unchanged at 4.15 from January to March this calendar year despite close monitoring by the central bank.

"We're now working to bring down the spread to 4.0 per cent from the existing level shortly," a senior official of the Bangladesh Bank (BB) told the FE on Tuesday.

The BB is now monitoring the issue closely, the central banker said without elaborating.

The weighted average rate on deposits rose to 5.35 per cent in March from 5.34 per cent a month before while interest on lending stood at 9.50 per cent from 9.49 per cent.

Senior bankers predicated that the rising trend in interest rates on deposit may continue in the coming months to meet the growing demand for fresh funds to comply with the policy for offshore banking operation of the banks, issued by the central bank on February 25 last.

As per the policy, the banks will have to keep 13 per cent of their total liabilities as statutory liquidity ratio (SLR) and 5.50 per cent as cash reserve requirement (CRR) from July 01.

"The interest rates on deposit may slightly rise further unless there are some policy changes by the authorities concerned," Syed Mahbubur Rahman, Chairman of Association of Bankers, Bangladesh (ABB), told the FE while replying to a query.

Mr. Rahman, also Managing Director and Chief Executive Officer of Dhaka Bank Limited, said the demand for fresh liquidity may rise before implementation of the Bangladesh Bank (BB)'s policy for offshore banking operation of the banks.

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

The interest rates on term deposit are now hovering between 9.0 per cent and 11 per cent, according to the private banker.

The spread, being maintained by at least 15 commercial banks, out of 57, still remains high. It ranges between over 5.0 per cent and 8.30 per cent.

Average spread with the state-owned commercial banks (SoCBs) was 2.27 per cent in March 2019, and 4.34 per cent with the PCBs.

It was 6.69 per cent with the foreign commercial banks (FCBs), and 2.27 per cent with the specialised banks (SBs), the BB data showed.

Excluding consumer finance and credit card, the spread of all banks also remained unchanged at 4.06 per cent in March 2019 from the previous month.

siddique.islam@gmail.com