The overall weighted average interest rate spread in the country’s banking sector fell below 4 percentage points for the first time in September amid a deposit rate rise triggered by liquidity crisis in the sector.
In September of the current fiscal year 2019-2020, the overall weighted average interest rate spread dropped to 3.91 per cent, the lowest since 1975 when the central bank started keeping records of weighted average interest rate spread.
The weighted average interest rate is the difference between the weighted average lending rate and the weighted average deposit rate at banks. Officials of the central bank told New Age, ‘It’s a very satisfactory outcome of the central bank’s various steps which were taken to bring down the rate to facilitate trade and investments.’
Although the overall spread in the banking sector dropped, 29 banks still have the spread above the Bangladesh Bank-set limit of 4 percentage points.
However, the spread in 36 banks was above 4 percentage points in March last year when the BB reduced it by 1 percentage points from 5 percentage points as part of the government’s move to bring down the lending and deposit rates to 9 per cent and 6 per cent respectively.
The average spread in the private commercial banks dropped to 4.07 percentage points at the end of September from 4.42 percentage points in January this year.
The average interest rate spread in the state-owned banks fell marginally to 2.11 percentage points from 2.22 percentage points.
In the specialised banks, the average spread dropped to 1.82 percentage points from 1.85 percentage points.
The average spread in the foreign commercial banks remained high at 6.22 percentage points.
Association of Bankers, Bangladesh chairman Syed Mahbubur Rahman told New Age recently, ‘Although the banks were forced to increase deposit rate, there was no scope for increasing the lending rate. As a result, the weighted average interest rate spread in the banking sector dropped to 4 percentage points.’
Besides, a rise in the non-performing loans in the country’s banking sector might be another reason for the decrease in spread, he said.
‘However, the rate has come down to the BB-set limit,’ he added.
Around 20 banks have been hunting for deposits aggressively since January last year when the BB instructed to bring down advance deposit rate to 83.5 per cent.
Due to the instruction, many banks had offered even more than 10 per cent interest rate to attract depositors, contradicting the government move to bring down deposit rate to 6 per cent.
Amid unstable market condition, the central bank thrice extended the deadline for the ADR adjustment — the latest to September this year.
Taking the market situation into consideration, the BB finally restored the earlier ADR, stating that the liquidity situation in the banking sector improved in recent times and created scope for issuing loans by banks.
However, the private sector credit growth in September this year dropped to 10.66 per cent, the lowest since September, 2010 when it was 6.09 per cent.
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