Bank spread still high
No signs of a reduction appeared in the bank interest spread between lending and deposit rates despite downward adjustments twice in deposit rates this year, Bangladesh Bank (BB) data reveals.
The spread stood at 5.68 percentage points in September, which was 5.69 in August and 5.68 in July. On the other hand, deposit rates are continuously sliding down to reach 7.45 percent in September from 7.93 percent in July.
The average commercial lending rate is however hovering between 13 and 14 percent.
Average spread for the first quarter of 2009-10 fiscal reached over 5.68 percentage points, much higher than average 5.39 points in 2008-09 and 5.41 points in 2007-08.
“The high spread rate shows inefficiency of our banking sector,” said Ahsan H Mansur, executive director of Policy Research Institute, a private research firm.
“It can only be avoided by proper financial intermediation,” said Mansur who had worked for the International Monetary Fund for nearly three decades.
According to him, optimum rate of spread should not cross 4 percentage points.
The BB has been pursuing commercial banks for years to reduce the spread. But it did not work. Moreover, the rate continued to go high. The spread was within 4 percentage points in 1990s and it rose close to 5 points in 2003-04 fiscal. Data shows since then it has been rising.
The spread in India and China is well below 4 percentage points.
Banks in Bangladesh have made huge profit in the first three quarters till September despite a sluggish trend in investment activities throughout the year because of the energy and global financial crisis.
The industry's such profit-making trend has surprised many.
“They (banks) made the profit on high spread rate,” said Mansur, also an economist.
He, however, viewed the cost of fund, mainly because of deposit, is higher in Bangladesh than many other countries. But it can efficiently be handled through managing administrative and operating costs of banks, the economist remarked.
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