Interest rate spread fell slightly in February this year, as banks slashed both their deposit and lending rates owing to high deposit flow in the sector.
The overall weighted average spread between lending and deposit rates of banks stood at 3.02% in February, down from 3.05% in January.
Some of the banks slashed their rates in February, which caused the spread to fall, said a senior official of Bangladesh Bank.
Spread fell by 1.07 percentage point in the last one year owing to the 9% ceiling on bank lending.
The interest rate spread fell below 3 percentage points for the first time in April last year, as most banks implemented the single digit lending rate from the same month.
Bankers said that the country’s lenders are trying to reduce the cost of funds by slashing their interest rates on deposits as there is increasing flow of deposits in the market.
Deposit growth in the banking sector stood at 13.03% in January this year, which was 12.76% a year ago.
Slow credit demand and increased remittance earning drove deposit flow in the country’s banking sector, which encouraged lenders to cut the deposit rate, said MA Halim Chowdhury, former managing director of Pubali Bank.
The record amount of surplus liquidity in the banking sector was another reason for the low interest rate of deposits, he added.
Surplus liquidity in the banking sector stood at Tk200,000 crore at the end of February this year.
“We are collecting all kinds of deposits at 4-5% interest. Earlier, those products had higher rates on them, which helped us improve our spread,” said Dhaka Bank Managing Director Emranul Huq.
The overall weighted average deposits rate in the banking sector stood at 4.46% in February, down from 4.51% in January.
On the other hand, the overall weighted average lending rate in the sector stood at 7.48%, down from 7.56% in January.
In February, an increasing number of banks deposits rate stood at below 3%, as there is no liquidity pressure in the market.
According to the BB data, the average interest rate spread of state-owned commercial banks was 2.06%in February; 3.12% for private commercial banks; 5.51% with foreign banks and 1.76% with specialized banks.
