Interest rate spread falls to 4.7pc in Oct

Overall interest rate spread in the country's banking sector fell further slightly in October, as the commercial banks slashed their interest rates on lending more than on deposits, officials said.
The weighted average spread between lending and deposit rates, offered by the commercial banks, came down to 4.70 per cent in October 2016 from 4.76 per cent in the previous month. The spread was 4.80 per cent in August 2016, according to the central bank's statistics.
The Bangladesh Bank (BB) is now working to bring down the spread to nearly 4.0 per cent in the near future from the existing level, according to officials.
"We've already advised the banks to reduce their interest rate spread through improving efficiency as well as profitability instead of slashing interest rates on deposits," a senior official of BB told the FE on Sunday.
The central banker expects that the spread will decrease in the coming months, as BB is persuading the banks continuously.
The weighted average rates on deposits came down to 5.33 per cent in October from 5.39 per cent in the previous month, while interests on lending dropped to 10.03 per cent from 10.15 per cent, the central bank's data showed.
The spread being maintained by at least 15 commercial banks, out of 56, still ranges as high as between more than 5.0 per cent and 8.93 per cent.
Average spread with the six state-owned commercial banks (SoCBs) is 3.90 per cent, private commercial banks (PCBs) 4.82 per cent, foreign commercial banks (FCBs) 6.66 per cent, and specialised banks (SBs) 2.60 per cent.
Excluding consumer finance and credit card, the spread of all banks came down to 4.60 per cent in October 2016 from 4.66 per cent in September. It was 4.69 per cent in August.
Talking to the FE, Syed Mahbubur Rahman, Managing Director and Chief Executive Officer of Dhaka Bank Limited, said most of the banks are now offering single-digit interest rate on different types of lending, including the term-ones, to attract corporate clients.
"Such trend may continue in the next couple of months," Mr. Rahman noted.
He also said profitability of the banks may hamper in future, if the falling trend in spread continues.  
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