The banking sector has witnessed a higher spread as the deposit rate is falling faster than the lending rates.
The average interest rate on deposits has dropped by 1.14% during last one year while lending rate declined by 0.99%, according to the Bangladesh Bank data.
The lending rate stood at 12.46% on December last year compared to 13.45% in the same period of previous year while deposit rate came down to 7.25% from 8.39%.
The gap between lending and deposit rates increased to 5.21% on December last year compared to 5.06% in the same period of the previous year.
Mainly foreign banks have been blamed for the widening the gap between average deposit and lending rates as they maintain low cost deposit compared to the market average rate but the lending rate remains within market average rate, according to an analysis of Bangladesh Bank.
As a result, the interest rate spread of these banks ranged between 6% and 10%, which put pressure on average spread of the banking sector, said the analysis.
The average deposit rate of foreign banks was 3.62% on December against the lending rate of 11.46%.
Of the foreign banks, Standard Chartered maintained highest spread of 10.17% during the month with deposit rate of 2.79% against lending rate of 12.96%.
The deposit rate of Citibank N.A was 1.27% against lending rate of 9.98% followed by Commercial bank of Ceylon 4.66% against 11.55% and HSBC 3.6% against 10.28%.
Of the local banks, The City Bank, IFIC, Dutch-Bangla Bank, One Bank and BRAC Bank maintain the spread beyond the expected level of 5%.
The spread of these banks is higher as they maintain low cost deposit but lend at a higher interest rate.
According to the central bank observation, despite lower deposit rate of 5%, people prefer Dutch-Bangla Bank more due to its technology facilities. The bank maintained highest number of ATM booths both in rural and urban areas. As a result, the bank does not need to offer high deposit rate.
Despite low cost deposit, the bank lend at the market average interest rate, which resulted in higher spread. At the end of December the spread of Dutch-Bangla Bank was 7.48%.
Of the local private banks, BRAC Bank always maintains highest spread of above 10% due to high lending rate.
The bank mainly involves in SME lending in the rural area, which requires high supervision. The bank charge high interest rate to absorb risk as most of the SME loans are without collateral. In this backdrop, the spread of the bank is higher, which also put pressure on overall spread.
Earlier in January 2012, Bangladesh Bank had advised the banks to limit spread within lower single digit in different sectors other than high risk consumer credit and SME loans to rationalise the deposit and lending rate.
The advice came in the backdrop of aggressive lending of banks at high interest rate as well as collect deposit at high cost during that year. The interest rate on deposit and advances was the highest ever of 8.26% and 13.77% respectively in the year 2012.
Bangladesh Bank allowed foreign loans for private sector to put pressure on lending rate of local banks so the spread come to the expected level.
Though the spread increased, the central bank is not worried about it as the lending rate is in downward trend, said a senior executive of Bangladesh Bank.
The existing gap between lending and deposit rate is not abnormal comparing the other South Asian countries, observed the central bank.
According to a World Bank report released recently on global financial development, 2014, the spread of China was 3.1%, Vietnam 2.4%, Indonesia 5.6%, Malaysia 2.5%, Pakistan 6% and Thailand 4.8%.