Fresh BB move to reduce spread between lending, deposit rates
Thursday, 14 February 2008
Siddique Islam
The Bangladesh Bank (BB) is going to take a fresh move aiming to reduce the spread between lending and deposit interest rates in commercial banks and help boost business activities.
As part of the initiative, the central bank will resume its persuasion of the banks to reduce the spread of interest rates through improving their efficiency, officials said.
The BB will sit with the representatives of Bangladesh Association of Banks (BAB), an apex body of the country's private commercial banks (PCBs), Monday next to discuss the interest rate issue.
"We will advise the banks for taking initiatives to reduce the spread through improving their managerial efficiency," a BB senor official told the FE Wednesday.
The meeting will discuss ways to reduce the rates of different changes, commissions and fees of the banks, he added.
The central bank will take the measures against the backdrop of rising trend of the spread despite its persuasion over the years.
"The BB may meet with other stakeholders including the Association of Bankers, Bangladesh (ABB) after the meeting with the BAB to discuss mainly spread of interest," the central bank official noted.
Meanwhile, a high-powered committee has already submitted its report relating to the spread calculation methodology to the concerned authorities of the central bank for taking necessary steps.
"We have submitted our report recommending the commercial banks to follow weighted average method for calculation of the spread," a member of the committee told the FE.
The four-member committee was formed to prepare a report on spread calculation methodology for the commercial banks in line with the regional and international standard.
Currently, there is no specific format to determine the spread by the commercial banks. Some banks follow international standard, some uses their own methods while others follow the BB's system.
The spread between lending and deposit rates slightly increased in September, 2007 despite persuasion by the central bank to narrow it down.
In July 2007, the central bank asked 27 commercial banks that have maintained spread of over 5.0 per cent between lending and deposit rates to explain their position.
The weighted average spread between lending and deposit rates in the country's banking sector stood at 6.16 per cent as on September 30, 2007 against 5.93 per cent on June 30 last, according to the central bank statistics.
Besides, the weighted average rates on lending stood at 12.92 per cent in September last while the interest on deposit at 6.76 per cent by the banks, the data showed.
The spread being maintained by at least 16 commercial banks out of 48 still ranges between over 6.0 and 13 per cent, while the average spread of the state-owned four commercial banks, private commercial banks (PCBs), foreign commercial banks (FCBs), specialised banks (SBs) is 5.88 per cent, 6.17 per cent, 8.91 per cent and 2.98 per cent respectively.
The country's business community earlier requested the governor of central bank for taking initiatives to reduce lending rates to facilitate business activities, particularly the industrialisation.
They said the interest rates on lending will go up if the spread increases, which may erode competitiveness of local entrepreneurs in the global market.
The Bangladesh Bank (BB) is going to take a fresh move aiming to reduce the spread between lending and deposit interest rates in commercial banks and help boost business activities.
As part of the initiative, the central bank will resume its persuasion of the banks to reduce the spread of interest rates through improving their efficiency, officials said.
The BB will sit with the representatives of Bangladesh Association of Banks (BAB), an apex body of the country's private commercial banks (PCBs), Monday next to discuss the interest rate issue.
"We will advise the banks for taking initiatives to reduce the spread through improving their managerial efficiency," a BB senor official told the FE Wednesday.
The meeting will discuss ways to reduce the rates of different changes, commissions and fees of the banks, he added.
The central bank will take the measures against the backdrop of rising trend of the spread despite its persuasion over the years.
"The BB may meet with other stakeholders including the Association of Bankers, Bangladesh (ABB) after the meeting with the BAB to discuss mainly spread of interest," the central bank official noted.
Meanwhile, a high-powered committee has already submitted its report relating to the spread calculation methodology to the concerned authorities of the central bank for taking necessary steps.
"We have submitted our report recommending the commercial banks to follow weighted average method for calculation of the spread," a member of the committee told the FE.
The four-member committee was formed to prepare a report on spread calculation methodology for the commercial banks in line with the regional and international standard.
Currently, there is no specific format to determine the spread by the commercial banks. Some banks follow international standard, some uses their own methods while others follow the BB's system.
The spread between lending and deposit rates slightly increased in September, 2007 despite persuasion by the central bank to narrow it down.
In July 2007, the central bank asked 27 commercial banks that have maintained spread of over 5.0 per cent between lending and deposit rates to explain their position.
The weighted average spread between lending and deposit rates in the country's banking sector stood at 6.16 per cent as on September 30, 2007 against 5.93 per cent on June 30 last, according to the central bank statistics.
Besides, the weighted average rates on lending stood at 12.92 per cent in September last while the interest on deposit at 6.76 per cent by the banks, the data showed.
The spread being maintained by at least 16 commercial banks out of 48 still ranges between over 6.0 and 13 per cent, while the average spread of the state-owned four commercial banks, private commercial banks (PCBs), foreign commercial banks (FCBs), specialised banks (SBs) is 5.88 per cent, 6.17 per cent, 8.91 per cent and 2.98 per cent respectively.
The country's business community earlier requested the governor of central bank for taking initiatives to reduce lending rates to facilitate business activities, particularly the industrialisation.
They said the interest rates on lending will go up if the spread increases, which may erode competitiveness of local entrepreneurs in the global market.