Interest rate spread goes below 5 amid dull business

A file photo shows bank officials serving clients inside a private bank in Dhaka. Interest rate spread in the banking sector declined below five percentage points in March after 14 months due to the ongoing dull business against the backdrop of political unrest. — New Age photo

Interest rate spread in the banking sector declined below five percentage points in March after 14 months as most of the scheduled banks have been compelled to reduce the rate of interest on both their lending and deposit products due to the ongoing dull business against the backdrop of political unrest.
According to Bangladesh Bank data released on Tuesday, the overall interest rate spread, the gap between the interest rate on credit and deposit, decreased to 4.87 percentage points in March from that of 5.04 percentage points in February of this year.
The interest rate spread decreased to five percentage points in January, 2014 after which the rate hovered more than five percentage points in the last 13 months, according to the BB data.
In accordance with the BB directives, the banks have to maintain the spread rate below five percentage points, but they frequently violated the rules to earn quick profit imposing more interest rate on lending against the lower rate on deposit.
The BB officials said that the spread rate had gone down in January 2014 as the business sector faced a political turbulence due to the holding of the one-sided national election in the month.
The latest declining trend in the spread rate is not also a normal phenomenon as the businesspeople are still maintaining a go-slow policy due to the political crisis, they said.
The declining trend will be positive if the business environment enjoys a vibrant situation, they said.
The credit demand from the private sector continued to maintain a slower pace which fueled the excess liquidity in the majority number of the banks in the recent period.
For this reason, the banks consecutively cut their rate of interest on lending over the year to encourage the entrepreneurs but their (businessmen) feedback is yet to reach a satisfactory level.
Due to the lower credit disbursement, the banks also cut the rate of interest on deposit to discourage the depositors so that they (banks) get a respite from the over-burden of paying the interest, a BB official said.
The weighted average rate on lending stood at 11.93 percentage points in March while the interest rates on deposits were paid at 7.06 percentage points, the BB data showed.
In February this year, the average lending rate was 12.23 percentage point and average deposit rate was 7.19 percentage point.

Source: New Age

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