Fortune still favours the bankers as banks equally cut deposit, lending rates

SIDDIQUE ISLAM | Monday, 27 September 2021

Fortune favours the bankers as the spread remains same though they cut interest rates both ways-on deposits and lending-to match current realities.

Banking sources said the interest-rate spread remained unchanged in August 2021 as the banks cut their both deposit and lending rates equally.

The weighted average spread between the lending and deposit rates, offered by the scheduled banks, remained unchanged at 3.19 per cent in August from the previous level. It was 3.20 per cent in June 2021.

The weighted average interest rate on deposits fell further to 4.05 per cent in August 2021 from 4.11 per cent in the previous month while such rate on lending came down to 7.24 per cent from 7.30 per cent, according to the Bangladesh Bank (BB)'s latest statistics.

And the weighted average interest rate on deposits maintained a downturn in August despite implementation on rationalisation of interest rate on term deposits by the banks in line with BB instructions.

Earlier on August 08, all the scheduled banks were instructed to fix interest rates on term deposits with maturity of three months and above at rates not less than the rate of inflation, which was published three months before.

Only individuals and holders of two recognized funds-provident fund and gratuity fund- are eligible to receive such interest rate on their deposits, according to the central bankers.

The banks are now offering interest rate on such fixed deposits at 5.60 per cent as per the BB directives, according to senior bankers.

Some banks have already slashed the interest rates on savings deposit slightly to adjust the higher yields on deposits for individuals and the recognized funds, they added.

On the other hand, the weighted average interest rates on lending witnessed a downward trend during the period under review despite an upward trend in normal lending rates.

"The weighted average lending rates are lower than normal lending ones because the low-cost refinancing lending is included in the calculation of such average rates," a senior executive of a leading private commercial bank (PCB) explained.

He also said the interest rates on normal lending had already been increased slightly following the mopping up of excess liquidity from the market by the central bank.

Earlier on August 09 last, the central bank resumed mopping up excess liquidity through BB Bills from the market after more than three years of suspension, aiming to ensure proper liquidity management in the banking system.

"The rising trend in lending rates may continue in the coming months as the demand for fresh credits is now increasing following the reopening of the country's overall economic activities gradually," the senior banker predicted.

The private-sector credit growth rose to 8.38 per cent in July 2021 on a year-on-year basis, from 8.35 per cent a month ago, according to BB's latest data.

Talking to the FE, Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh, said the overall cost of funds is now showing an upturn which ultimately is expected to narrow the spread.

The average spread with state-owned commercial banks (SoCBs) was 2.33 per cent in August, 3.35 per cent with PCBs, 5.08 per cent with foreign commercial banks (FCBs) and 1.29 per cent with specialised banks (SBs).

In April 2020, the spread dropped significantly to 2.92 per cent from 4.07 per cent in March following the implementation of the government-mandated single-digit interest rate in the banking sector.

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