BB asks banks to reduce spread between lending and deposit rates

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FE Report
The Bangladesh Bank (BB) has started persuasion with the banks to reduce spread between lending and deposit rates, official sources said.
The central bank took the move against the backdrop of raising trend of spread in June last that may affect competitiveness of local entrepreneurs in the global market.
"We have already started moral-suasion with the banks, which have spread more than 5.0 per cent, to bring down it a tolerable limit," Senior Executive Director of the BB Murshid Kuli Khan told the FE Thursday.
The central bank earlier asked 27 commercial banks, which have spread between lending and deposit rates over 5.0 per cent, to explain their positions.
The moral suasion with the banks will continue until the first week of September, he said, adding that the central bank will take next course of actions after completing the persuasion process.
"We will strengthen our persuasion to the commercial banks for reducing the spread between lending and deposit rates through improving their efficiencies but not increasing lending rates itself," another BB senior official told the FE earlier.
The weighted average spread between lending and deposit rates in the country's banking sector stood at 5.93 per cent in June 30, 2007 against 5.74 per cent of March 31 last.
According to the central bank statistics, the weighted average rates on lending stood at 12.78 per cent in June last while the interest rates on deposit was paid at 6.85 per cent by the banks.
The spread at least 16 commercial banks out of 48 are still between over 6.0 and 10 per cent, while the average spreads of the nationalised commercial banks (NCBs), private commercial banks (PCBs), foreign commercial banks (FCBs), specialised banks (SBs) are 6.04 per cent, 5.69 per cent, 8.77 per cent and 2.94 per cent respectively.
The country's business community earlier urged the governor of central bank for taking initiatives to reduce lending rates to facilitate business activities particularly for industrialisation in Bangladesh.
They said the interest rates on lending will go up if the spread increases which may loss competitiveness of local entrepreneurs in the global market.
On the other hand, bankers alleged that some factors including administrative cost are not considered by the central bank while calculating the spread.
The central bank is calculating the spread on the basis of weighted average rates of interest on deposits and lending.