Interest rate spread narrows slightly

Overall spread between lending and deposit interest rates further narrowed slightly, as of September, as country's commercial banks charged a little lower on loans, officials said.
The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.76 per cent in September 2016 from 4.80 per cent in the previous month as the interest rates on lending decreased more than that of deposits, said sources in the banking circles.
The spread was 4.84 per cent in July 2016.
The weighted average rates on deposits came down to 5.39 per cent in September last from 5.44 per cent in the previous month while interests on lending dropped to 10.15 per cent from 10.24 per cent, according to the central bank statistics released Tuesday.
"There is no scope to slash interest rates on deposits further considering the inflationary pressure on the economy," a senior official of a leading private commercial bank (PCB) told the FE.
The rate of inflation was 5.71 per cent in September 2016 in a drop from 5.77 per cent of the previous month on 12-month average basis, according to the Bangladesh Bureau of Statistics (BBS) data. It was 5.84 per cent in July 2016.
Most of banks have already brought down their interest rates on lending to nearly single digit to attract their corporate clients, according to the private banker.
He also said the banks may lower the interest rates on SMEs and consumer loans for bringing down their interest-rate spread further in the near future.
"We're now working to bring down the spread to nearly 4.0 per cent in the near future from the existing level," a senior official of the Bangladesh Bank (BB) told the FE.
The BB official also said the central bank had already advised the banks to reduce their interest-rate spread through improving their efficiency as well as profitability both instead of slashing interest rates on deposits.
The central banker expects that the spread would decrease further after introduction of revised calculation method for CAMELS rating from December this year.
Currently, a nine-member high-powered committee, headed by BB Deputy Governor Abu Hena Mohammad Razee Hassan, is working to revise the guidelines for CAMELS rating.
Under the proposed revision of the CAMELS calculation method, banks having above 5.0 per cent spread between rates of interest on public deposits and banks' loans will have to bring it down under 5.0 per cent.
Otherwise, noncompliance with the regulations of the BB will be reflected in their CAMELS ratings.
CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) rating is a supervisory tool to identify those banking companies which have problems and require increased oversights.
The spread being maintained by at least 19 commercial banks out of 56 still ranges as high as between more than 5.0 per cent and 10.53 per cent, the Bangladesh Bank (BB) data showed.
Average spread with the six state-owned commercial banks (SoCBs) is 3.82 per cent, private commercial banks (PCBs) 4.89 per cent, foreign commercial banks (FCBs) 7.52 per cent and specialised banks (SBs) 2.69 per cent.
Excluding consumer finance and credit card, the spread of all banks rose to 4.66 per cent in September 2016 from 4.60 per cent a month ago.
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