Interest rate spread in the country's banking sector decreased further in November, although the commercial banks increased their interest rates more on deposit than lending, officials said.
The interest rates on deposit returned to an upward trend in November 2018 after maintaining a declining trend in the previous three consecutive months, according to the Bangladesh Bank's (BB) latest statistics.
The weighted average rate on deposits rose to 5.30 per cent in November from 5.25 per cent a month before, while interest on lending stood at 9.50 per cent from 9.47 per cent.
The weighted average rate on deposits was 5.27 per cent and 5.36 per cent in September and August respectively.
Senior bankers predicated that the rising trend of interest rates on deposit will continue in the coming months to meet the growing demand for fresh funds to comply with the central bank's revised advance-deposit ratio (ADR) rules.
The ADR has been re-fixed at 83.50 per cent for all the conventional banks and 89 per cent for the Shariah-based Islamic banks. The existing ratios are 85 per cent and 90 per cent respectively.
The banks having ADR above the re-fixed limit have been asked to implement the revised limit by March 31, 2019.
"We've to mobilise deposit to comply with the revised ADR limit by the end of this March," Syed Mahbubur Rahman, Chairman of Association of Bankers, Bangladesh (ABB), told the FE on Tuesday.
Mr. Rahman, also Managing Director and Chief Executive Officer of Dhaka Bank Limited, said the private sector credit growth may pick up in the coming months after the new government takes office.
"The government's higher borrowing from the banking system is also creating extra pressure on the market," he added.
The government's net bank borrowing stood at Tk 50.50 billion by the end of December to meet the extra expenses for conducting the national polls.
Talking to the FE, a senior executive of a leading private commercial bank (PCB) said most of the banks are now offering higher rates on deposit to attract both individual and institutional depositors.
The interest rates on term deposit are now hovering between 6.0 per cent and 9.50 per cent, he added.
On the other hand, the weighted average spread between lending and deposit rates came down to 4.20 per cent in November 2018 from 4.22 per cent in the previous month. The spread was 4.27 per cent in September.
The spread, being maintained by at least 14 commercial banks, out of 57, still remains high. It ranges between more than 5.0 per cent and 8.52 per cent.
Average spread with the state-owned commercial banks (SoCBs) was 2.31 per cent in November 2018, and 4.41 per cent with the private commercial banks (PCBs). It was 6.82 per cent with the foreign commercial banks (FCBs), and 2.31 per cent with the specialised banks (SBs).
Excluding consumer finance and credit card, the spread of all banks came down to 4.12 per cent in November from 4.14 per cent in the previous month.
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