Interest rate spread widens further in May

The interest rate spread in the country's banking sector widened further in May as most of the banks cut deposit rates, keeping their lending rates almost unchanged.

The weighted average spread between lending and deposit rates offered by the commercial banks rose to 5.22 per cent in May last from 5.14 cent in the previous month, according to the Bangladesh Bank (BB) statistics.

"We've to slash the interest rate on all types of deposits to minimise our interest payment because the interest income from loan and advances saw a declining trend in the recent months," a senior official of a leading private commercial bank (PCB) told the FE Saturday.

The weighted average rate on lending stood at 13.23 per cent in May, while the average interest rate on deposits in the same month was 8.01 per cent.

In April last, the average lending rate was 13.25 per cent and average deposit rate 8.11 per cent, the BB data showed.

The private banker also said the declining trend in interest rate on deposits may continue in the coming months due to squeeze in investment opportunities in the wake of political uncertainty.

"Private sector credit from overseas sources has also contributed to lower credit demand in the local market," he explained.

The spread being maintained by at least 24 commercial banks out of 56 still ranges between more than 5.0 per cent and 10.01 per cent.

The average spread of the four state-owned commercial banks (SoCBs) is 3.53 per cent, PCBs 5.50 per cent, foreign commercial banks (FCBs) 8.28 per cent and specialised banks (SBs) 3.55  per cent.

In 2014, the spread fell to 4.99 per cent in January last from 5.06 per cent in the previous month. It was 5.06 in February 2014.

The central bank earlier asked the commercial banks to keep interest rate spread at less than 5.0 per cent, barring operations relating to credit cards and small and medium enterprises (SMEs).

"We're trying to bring down the interest rate spread at below 5.0 per cent to facilitate the country's business activities," a BB senior official told the FE.

He also said the interest rates, particularly those on industrial sector, will be discussed at the next bankers' meeting, scheduled to be held Monday.

The country's business community earlier urged the BB Governor for taking initiatives to reduce lending rates to facilitate business activities, particularly to augment industrialisation in the country.