After a 12-month pause, the Bangladesh Bank (BB) plans to resume publishing key data used to assess the financial health of commercial banks, including interest rates and spreads, from July next, according to officials.
They said this regular publication of interest rates and spreads is necessary not only to assess the health of commercial lenders but also to help the banking regulator monitor lending rates in the post-SMART regime.
The central bank ceased releasing the key information about the state of commercial banks' regular operations in July 2023, soon after introducing the SMART (six-month moving average rate of treasuries) system for setting interest rates.
The suspension of vital data has made it difficult for money market observers and bankers to understand the actual situation in the sector, in the context of the current highly contractionary monetary regime.
Speaking on condition of anonymity, a Bangladesh Bank official said the central bank is now considering resuming publication of the weighted average lending and deposit rates, along with spreads, in banks from July onwards.
With the abandonment of the SMART system and the return to market-based interest rates from 8 May 2024, the official said the banking regulator has begun work to release this vital data on a regular basis.
Another central bank official, who preferred anonymity, said the spread data would likely help the banking regulator control lending rates in the post-SMART regime. This is because a maximum spread could possibly be imposed, which banks would have to comply with.
If spreads are controlled with a band, the inflation target and price stability in the market would be hampered. Besides, monetary policy transmission may not work properly, the official warned.
Bangladesh has over 60 banks, but the market is not competitive enough. The central bank, according to the official, should prioritise creating infrastructure for a more competitive market.
Dr M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, welcomed the recent move by the banking regulator to leave interest rates to be determined by the market. He described it as a positive step.
But imposing a fixed spread is almost as bad as a ceiling, said Dr Reaz, adding that this would ultimately undermine the central bank's objective of transitioning to a market-driven interest rate system.
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