Interest rate spread narrowed in June

The average lending rate decreased 0.36 percentage points and deposit rates increased 0.4 percentage points in June, compared to March.
The average lending rate, which was 12.65 percent in March, decreased to 12.29 percent in June. The average deposit rate increased to 6.95 percent in June from 6.91 percent in March, according to Bangladesh Bank statistics.
The reduction in the lending rate and an increase in deposit rates have narrowed the interest rate spread.
The spread edged down to 5.34 percentage points in June from 5.74 points in March, as a result of continued pressure from the central bank and business leaders.
Bangladesh Bank threatened the banks with punitive measures -- including holding back permission for opening new branches -- if they did not cut the spread, especially by reducing the lending rates.
The interest rate spread is the gap between the interest rate a bank pays on deposits and the higher rate it charges for loans.
According to the BB statistics, all banks -- other than the government-owned specialised ones -- have slashed lending rates in June. At the same time, private and foreign commercial banks have raised their deposit rates. However, state-owned commercial Banks (SOBs) and specialised banks reduced the deposit rate slightly in June.
The average lending rate of SOBs, specialised banks, private commercial banks (PCBs) and foreign commercial banks (FCBs) were 9.41 percent, 9.78 percent, 13.51 percent and 13.79 percent respectively in June, the rates being 10.96 percent, 9.66 percent, 13.60 percent and 13.87 percent in March.
Deposit rates of SOBs, specialised banks, PCBs and FCBs were 4.93 percent, 6.58 percent, 8.42 percent and 5.25 percent respectively in June. The rates were 5.11 percent, 6.78 percent, 8.24 percent and 4.85 percent in March.
"It is a good sign that the banks have finally reduced the lending rates, although the extent to which they have reduced the rates is not enough,” a senior BB official told The Daily Star.
The central bank's directives aim to fix the interest rate spread at 5 percentage points, which means the current spread is 0.34 percentage point higher. The BB official said the PCBs had promised to bring the spread down by slicing the lending rates and downward adjustments of service charges.
“We will have a final assessment of the rates in December before going for any action against the banks,” he said.
However, according to the regulations, the central bank cannot force any bank to reduce interest rates or increase deposit rates.