Years of efforts by the central bank has yielded little result in lowering the rates of interest and narrowing down the gap between lending and deposit rates, which is known as the “spread” in banking terms.
But a shrinkage in demand from the loans market, due to the unpredictability over the polls-time situation, coupled with the growing volatility on the political front, has automatically achieved the goal.
An almost barren investment environment has forced the banks to be a little bit generous, lowering their interest rates by a few basis points, which pulled the deposit rates too, eventually reducing the spread.
Bangladesh Bank data show the spread of private commercial banks came down to 5.25% while the average spread stood at 5.01% in September from 5.34% and 5.13% respectively in June.
The figures, released on Thursday, revealed the country’s commercial banks have reduced their lending rates slightly in September due to the draughty investment environment during the ongoing political unrest.
In September, the average lending rate of a private commercial banks was 14.25% while the deposit rate was 9%, which back in June stood at 14.44% and 9.1% respectively.
Meanwhile, the spread of 15 private commercial banks out of 54 remains above the central bank’s permissible limit of 5% compared to 19 banks in June.
“Banks’ lending rates are seeing a downward trend and it will decrease more,” said Managing Director of NCC bank Nurul Amin.
“ By December, the spread of almost 90% of banks will come down to 5% due to the reduction of lending rates,” he said.
“Banks have to cut lending rates as business is going slow due to the political unrest, lower income than expenses and availability of foreign loans. Already a slump in business has hit the banks’ profit and EPS (earning per share),” he said.
On the other hand, the spread of foreign banks averaged at 8.59% and among the private commercial banks, Brac bank’s spread was the highest at 9.10% in September.
“The spread has already declined and Bangladesh Bank will ask those banks who still maintain above the limit spread to bring it down to 5%,” said Bangladesh Bank Deputy Governor SK Sur Chowdhury.
In the meantime, the interbank call money rate remained stable at a range of between 7% and 7.5%, showing signs of adequate liquidity in the money market.
The call money rate came down to its lowest at 7% in last couple of weeks, and went as high as 8% in the last year. However, it rose to 9% for just over a week ahead of Eid-ul-Azha.
“Borrowing from foreign sources at lower interest rates also made the entrepreneurs reluctant to take loans at high rates from the country’s financial market,’’ said a senior executive at one of the private banks.
From 2010 to October 2013, the central bank has allowed private firms to borrow $3.64bn or Tk279.6bn from foreign sources at lower interest of around 5%. Most of the credit went to telecommunications, power and textile sectors, according to the central bank data.
The private banks which still maintain spread above 5% were: AB bank (5.26%), City bank (5.76%), IFIC (5.82%), Pubali (5.35%), Uttara (5.99%), Eastern (5.42%), Prime (6.67%), SIBL (5.53%), Dutch-Bangla (8.09%), One bank (6.16%), Bangladesh Commerce bank (5.90%), Premier (6.21%), Bank Asia (5.85%), Jamuna (6.23%) and BRAC (9.10%).