The lending rate in the banking sector hit four-year low in January thanks to Bangladesh Bank that had earlier warned the commercial banks to cut the interest rate on loans and advances for reducing the interest rate spread within a desired level of 5%.
The weighted average lending rate stood at 12.32% in January this year. The rate was earlier 11.34% in 2010.
The interest rate spread – the gap between advance and deposit rates – came down to a 10-month low in January, due to the lending rate cut by the banks.
The spread stood at 5.06% in January, which went up to 5.21%, hitting a five-month’s high, in December last year, according to Bangladesh Bank data. Earlier, the gap was 5.06% in February last year with highest 13.40% lending rate of the year.
The spread came down close to the authorised level of 5% as the banks had to cut their lending rate under pressure from Bangladesh Bank, said a senior executive of the central bank.
The gap was on rise since the last couple of months as the deposit rate was much lower than the lending rate, he said.
In these perspectives, ministry of finance asked the central bank to bring down the spread within the expected level.
Moreover, the board of the central bank also expressed concern at a recent meeting over the widening of the spread.
Banks went for massive cut in lending rates due to the pressure of the central bank for reducing the spread, he said.
The lending rate came down to 12.32% in January, dropped by 0.14% from 12.46% in the previous month. The deposit rate improved to 7.26% during the month, instead of declining from 7.25% in previous month.
The banks have increased the interest rate on deposit for the first time in the last one year while lending rate was increased time to time during the period.
The state-owned banks improved the lending rate as well as the deposit rate in January. The lending rate of these banks stood at 11.28% during the month from 10.67% in November while deposit rate improved to 7.19% from 7.08%, according to the Bangladesh Bank (BB) data. The foreign banks, which mainly accounted for high spread, have also cut lending rate to 11.48% in January from 11.81% in November last year.
The lending rate of private commercial banks dropped to 12.82% in January compared to 13.05% in November while the deposit rate fell slightly to 7.52% from 7.6%, according to the BB data.
