The Financial Express

Lending rate falls, interest on deposits may also decrease further: Bankers

| Updated: December 11, 2020 10:36:11

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The interest rate spread dropped slightly in October last as the banks slashed the lending rates more than that of the deposit rates.

The interest on the loans and advances decreased comparatively at higher rates than that of the deposits in October 2020 as the banks are now implementing the low-cost financial stimulus packages to help businesses overcome the adverse effect of the Covid-19 pandemic, according to the bankers.

They said the interest rates on fresh deposits might fall further because of the availability of fund in the market.

The weighted average spread between the lending and deposit rates offered by the commercial banks came down to 2.94 per cent in October from 3.00 per cent a month ago. It was 4.07 per cent in March.

Senior bankers, however, predicted that the spread may fall further in the coming months if the falling trend in interest rates on both deposit and lending continues.

Most of the banks have already slashed their interest rates on all types of deposits because of a higher inflow of liquidity in the market, they explained.

The weighted average rate on deposits fell to 4.73 per cent in October from 4.79 per cent in the previous month while such rate on lending came down to 7.67 per cent from 7.79 per cent, according to the Bangladesh Bank's (BB) latest statistics.

Talking to the FE, the managing director of a state-run bank said the interest rate spread is likely to fall further in the near future following implementation of the stimulus packages.

Prime Minister Sheikh Hasina has so far announced 19 stimulus packages worth Tk 1.03 trillion.

The packages, which are 3.7 per cent of the country's gross domestic product (GDP), are now being executed under the supervision of the central bank and the finance ministry.

"Some banks are now offering fresh loans to the 'good borrowers' at an interest rate below 9.0 per cent to invest their excess liquidity," a senior executive of a leading private commercial bank (PCB) told the FE on Saturday, without elaborating.

The average spread with state-owned commercial banks (SoCBs) was 2.03 per cent in October, 2.95 per cent with PCBs, 6.08 per cent with foreign commercial banks (FCBs) and 1.95 per cent with specialised banks (SBs).

In April, the spread dropped significantly to 2.92 per cent from 4.07 per cent in March following implementation of the single-digit interest rate in the banking sector.

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