Banks slash interest on deposit, widen spread for higher profit

Siddique Islam | Published: January 07, 2016 00:00:00 | Updated: February 01, 2018 00:00:00

Overall interest-rate spread in the country's banking sector increased a bit as the interests on deposits were lowered more than that on lending, bankers said.
The weighted average spread between lending and deposit rates offered by the commercial banks rose to 4.81 per cent in November 2015 from 4.77 per cent in the previous month, according to the central bank's latest statistics.
The spread was 4.82 per cent in September.
On the other hand, the weighted average rates on deposits came down to 6.46 per cent during the period under review from 6.58 per cent in October 2015 while interest rates on lending dropped to 11.27 per cent from 11.35 per cent.
"The overall interest-rate spread may fall in the coming months following sufficient excess liquidity with the banks," a senior official of a leading private commercial bank (PCB) told the FE.
He also said at least 20 banks are still heavily burdened with excess liquidity because of lower credit demand from the businesses engaged in both trade and industrial operations.
"The banks are compelled to invest their excess liquidity in government securities and 30-Day Bangladesh Bank (BB) bills to minimise their cost of funds," the private banker explained.
Some commercial banks are now offering 7.0 per cent lending rate to attract good-performing corporate clients recently to expedite their business activities, according to the banker.
Talking to the FE, a BB senior official said the central bank is now working to bring down the spread to nearly 4.0 per cent from the existing level.
He also said the central bank wants that the banks reduce the interest-rate spread with improvement of their efficiencies instead of slashing interest rates on deposits from savers. Â
The spread being maintained by 20 commercial banks out of 56 still ranges between more than 5.0 per cent and 9.78 per cent.
Average spread of the six state-owned commercial banks (SoCBs) is 2.09 per cent, PCBs 5.02 per cent, foreign commercial banks (FCBs) 7.45 per cent and specialised banks (SBs) 2.09 per cent, the BB data showed.
Country's business community earlier urged the central bank governor to take initiative to lower the lending rates to facilitate business activities, particularly to help augment industrialisation in the country.
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