Keep interest spread below 5.0pc sans deposit rate cut

The central bank has asked the commercial banks to maintain the interest rate spread below 5.0 per cent, without slashing the deposit rates, officials said.
The banks have been advised to reduce the intermediation spread through improving management efficiencies, including recovery of classified loans that would help bring down the lending rates.  
The latest move of the Bangladesh Bank (BB) came against the backdrop of faster decline in deposit rates than that of the lending rates.
The weighted average deposit rate of more than 20 banks slipped below 5.0 per cent in December 2016, according to the BB's latest report.
The central bank issued a directive in this connection Tuesday, asking the managing directors and chief executive officers (CEOs) of all the scheduled banks to remain pro-active and help check the falling deposit rates.
"We've taken the latest measures to protect the interest of depositors," BB deputy governor SK Sur Chowdhury told the FE Wednesday.
He said it would also help discourage expenses in the less productive sectors.
The falling trend in the interest rates on deposits has affected the savings habit of the people, prompting them to spend on wasteful consumption and unproductive sectors, according to the BB's instruction.
"We'll discuss the issue and take necessary measures in line with the BB's instruction," said Syed Mahbubur Rahman, MD & CEO of Dhaka Bank Limited.
Golam Hafiz Ahmed, MD & CEO of the National Credit and Commerce (NCC) Bank Limited, said that the overall fund management will have to be more careful to comply with the instruction.
The weighted average deposit rate in December last stood at 5.13 per cent at the state-owned commercial banks (SoCBs), 6.44 per cent at the specialised banks (SBs), 5.42 per cent at the private commercial banks (PCBs) and 1.79 per cent at the foreign commercial banks (FCBs).
The overall spread went up slightly in December last despite the banks had cut their deposit rates faster than that of the lending rates.
The weighted average lending rate fell to 9.93 per cent in December last from 9.94 per cent in the previous month while the deposit rate came down to 5.22 per cent from 5.29 per cent.
The weighted average spread between the lending and deposit rates rose to 4.71 per cent in December 2016 from 4.65 per cent in the previous month, the BB data showed.
The spread being maintained by at least 16 commercial banks, out of 57, still ranges between 5.0 per cent and 8.54 per cent.
The average spread with the SoCBs is 4.06 per cent, PCBs 4.82 per cent, FCBs 6.42 per cent and SBs 2.46 per cent.
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