Most commercial banks raise interest on deposit, lending
FE Report | Monday, 18 April 2011
FE Report
Most of the commercial banks raised interest rates on both deposits and lending this month to keep the interest at rate spread around five per cent, officials said. At least 26 commercial banks out of 47 increased interest rates on deposits in the month of April to meet the growing demand for their fresh liquidity while 30 commercial banks raised interest rates on lending. "Most of the banks are now trying to bring down their credit-deposit ratio (CDR) at a safe limit by June this year through increasing their deposit," a senior official of the Bangladesh Bank (BB) told the FE. On February 20 last, the central bank of Bangladesh had set June 30 as the deadline for bringing down the CDR of the commercial banks to a reasonable level. Under the directive, 19 conventional commercial banks will have to bring down their CDR to 85 per cent while five Sharia-based Islamic banks to 90 per cent by June 30 next. He also said the banks prefer fixed deposits to savings by offering even higher interest rates to collect funds from general depositors. The country's commercial banks now offer interest rates upto 13.50 per cent in April 2011 from 12.00 per cent of the previous month on fixed deposits, while the rate for savings accounts ranges between 9.50 per cent and 10 per cent, according to the central bank statistics. Term loans to large and medium-scale industries attract interest rates ranging between 11 per cent and 13 per cent while rates for small industries were fixed between 10 per cent and 18 per cent. Similarly, interest rates on housing loans range from 10.00 per cent to 17.50 per cent and on consumer credits are between 12.50 per cent and 22.00 per cent. Banks charge 12 to 18 per cent on working capital to large and medium scale industries and interest for small industries varies between 12 per cent and 18 per cent. On April 10 last, the central bank advised the commercial banks not to charge more than 14 per cent interest on working capital to industries. In March this year, the BB withdrew the lending rate cap in all sectors barring two -- agriculture and industrial term loan -- after nearly two years, following the increase in deposit rate that created a mismatch between the cost of funds and the interest rate ceiling set by the central bank on lending operations by the banks. "The overall interest rate spread in the banking sector may narrow down in the near future if banks increase their interest rates on deposits, keeping the lending rates unchanged," another BB senior official said, adding that the central bank was monitoring the interest rate spread closely.
Most of the commercial banks raised interest rates on both deposits and lending this month to keep the interest at rate spread around five per cent, officials said. At least 26 commercial banks out of 47 increased interest rates on deposits in the month of April to meet the growing demand for their fresh liquidity while 30 commercial banks raised interest rates on lending. "Most of the banks are now trying to bring down their credit-deposit ratio (CDR) at a safe limit by June this year through increasing their deposit," a senior official of the Bangladesh Bank (BB) told the FE. On February 20 last, the central bank of Bangladesh had set June 30 as the deadline for bringing down the CDR of the commercial banks to a reasonable level. Under the directive, 19 conventional commercial banks will have to bring down their CDR to 85 per cent while five Sharia-based Islamic banks to 90 per cent by June 30 next. He also said the banks prefer fixed deposits to savings by offering even higher interest rates to collect funds from general depositors. The country's commercial banks now offer interest rates upto 13.50 per cent in April 2011 from 12.00 per cent of the previous month on fixed deposits, while the rate for savings accounts ranges between 9.50 per cent and 10 per cent, according to the central bank statistics. Term loans to large and medium-scale industries attract interest rates ranging between 11 per cent and 13 per cent while rates for small industries were fixed between 10 per cent and 18 per cent. Similarly, interest rates on housing loans range from 10.00 per cent to 17.50 per cent and on consumer credits are between 12.50 per cent and 22.00 per cent. Banks charge 12 to 18 per cent on working capital to large and medium scale industries and interest for small industries varies between 12 per cent and 18 per cent. On April 10 last, the central bank advised the commercial banks not to charge more than 14 per cent interest on working capital to industries. In March this year, the BB withdrew the lending rate cap in all sectors barring two -- agriculture and industrial term loan -- after nearly two years, following the increase in deposit rate that created a mismatch between the cost of funds and the interest rate ceiling set by the central bank on lending operations by the banks. "The overall interest rate spread in the banking sector may narrow down in the near future if banks increase their interest rates on deposits, keeping the lending rates unchanged," another BB senior official said, adding that the central bank was monitoring the interest rate spread closely.