Interest rate spread drops to below 5.0 pc in Oct

The interest rate spread in the country's banking sector came down to below 5.0 per cent in October because of lower credit demand prompted by the ongoing political uncertainty, bankers said Wednesday.
 "Most of the entrepreneurs are now maintaining a 'go-slow' policy for investing their fresh funds in new ventures due mainly to the political turmoil centring the next parliamentary election," a senior official of a leading private commercial bank (PCB) told the FE.
He also said a good number of banks have already slashed interest rates on lending aiming to expedite their credit flow to the private sector in line with the Bangladesh Bank (BB) advice.
The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.95 per cent in October 2013 from 5.01 per cent in the previous month.
"The spread may fall further in the coming months if the confrontational political situation continues," the private banker noted.
In 2013, the spread fell to 4.99 per cent for the first time in April last from 5.06 per cent in the previous month. But it was 5.13 in June after one month's interval, the BB data showed.
Earlier on January 22 last year, the central bank 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've strengthened our monitoring and supervision for bringing down the interest rate spread at below 5.0 per cent through decreasing the interest rates on lending, particularly for productive sectors that would facilitate the country's business activities," SK Sur Chowdhury, deputy governor of the BB, told the FE.
The weighted average rate on lending came down to 13.42 per cent in October, while the interest rates on deposits were paid at 8.47 per cent.
In September last, the average lending rate was on 13.51 per cent and average deposit rate 8.50 per cent.
The spread being maintained by at least 23 commercial banks out of 55 still ranges between more than 5.0 and 10.24, while the average spread of the four government-owned commercial banks (SoCBs) is 3.25 per cent, PCBs 5.20 per cent, foreign commercial banks (FCBs) 8.48 per cent and specialised banks (SBs) 2.88  per cent.
The BB asked the chief executive officers of all banks at a meeting on August 25 last to bring down the interest rate spread below 5.0 per cent immediately.
The country's business community earlier urged the BB governor to take initiatives to reduce the lending rates to facilitate business activities, particularly to augment industrialisation in the country.