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Banks interest spread drops below 3pc for the 1st time

Published : Tuesday, 14 July, 2020 at 12:00 AM  Count : 313

The overall weighted average spread of interest rate in the country's banking sector fell below 3 per centage points for the first time following enforcement of 9-per cent ceiling on lending rate. Meanwhile credit demand has also fell amid coronavirus pandemic.
According to the Bangladesh Bank (BB) data, the overall weighted average interest rate spread in banks dropped to 2.94 per centage points in May from 4.07 per centage points in March.
In April, the first month of the lending rate ceiling implementation, the spread was 2.92 per centage points. In January 2019, the overall weighted average interest rate spread was 4.42 per centage points.
Officials of the central bank said, 'The spread dropped below 3 per centage points mainly because of the cap imposed on the banks' lending rate.' The government in February this year asked all scheduled banks to implement the much talked about lending rate ceiling from April 1 this year amid opposition from bank owners.
In September last year, the overall spread of weighted average interest rate dropped to 3.91 per cent, the lowest since 1975 when the central bank started keeping records of the weighted average interest rate spread. The weighted average interest rate is the difference between the weighted average lending rate and the weighted average deposit rate in banks.
'I am not that satisfied with reduced interest rate spread as it did not happen because of the banks' enhanced efficiency but rather due to the lending rate ceiling imposed by the central bank,' former BB governor Salehuddin Ahmed told The Daily Observer.
The banks went for the easier ways to bring down the interest rate spread, including job cuts and reduced loan disbursements to small and medium entrepreneurs, he said. On the other hand, banks also reduced the deposit rate as a means of reducing the spread which in turn has discouraged small savers from keeping money in the banks, the former BB governor said.
The banks which have a weighted average interest rate above 4 per cent are Modhumoti Bank, Dutch-Bangla Bank, Woori Bank, Citibank NA, the State Bank of India, Standard Chartered Bank, the Hong Kong and Shanghai Banking Corporation, Bank Al-Falah, the Commercial Bank of Ceylon, Community Bank Bangladesh, Shimanto Bank, Pubali Bank and BRAC Bank.
In March 2018, the BB reduced the spread by 1 per centage points from 5 per centage points as part of the government's move to bring down the lending and deposit rates to 9 per cent and 6 per cent respectively.
In May this year, the spread in the private commercial banks came down to 2.97 per centage points as their weighted average deposit and lending rate dropped to 5.64 per cent and 8.61 per cent respectively.
In the state-owned banks, the rate dropped to 2.23 per centage points with the weighted average deposit and lending rates standing at 4.34 per centage points and 6.57 per centage points respectively.
In the specialised banks, the weighted average deposit rate was 5.62 per cent and the lending rate was 7.65 per cent, taking the spread to 2.03 per centage points.















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