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Interest spread rate drops

AKM Zamir Uddin

Interest spread rate in the banking sector declined below five percentage point in November last year as surplus liquidity mounted in most of the scheduled banks due to a decreased loan disbursement amid dull business situation thanks to political unrest, Bangladesh Bank officials said.
According to the latest BB data, the overall interest spread rate, the gap between the interest rate on credit and deposit, stood at 4.97 percentage point and 4.95 percentage point respectively in November and October of the just concluded year.
The BB data showed that the interest spread rate in the banking sector had hovered at five percentage point in June-October of 2013.
The interest spread rate was 5.01 percentage point in September, 5.01 in September, 5.02 in July and 5.13 in June.
A BB official told New Age on Thursday that the credit demand from the private sector dropped significantly as the businesspeople had recently adopted a ‘wait and see’ approach to business expansion due to the ongoing political violence ahead of next general elections.
Under the circumstances, surplus liquidity in the banking sector increased to Tk 90,073.73 crore as of November 28 from Tk 79,663.77 crore as of October 17 last year.
The BB data showed that the private sector credit growth declined to 11.04 per cent in October last year compared with that of 20.60 per cent in the same month of the previous year.
Against the backdrop, the majority of banks are now holding huge amount of deposits, compelling them to reduce the rates of interest on their deposit products, he said.
Besides, the banks have also cut the rate of interest on lending due to the lower credit demand from the private sector amid stagnant situation in the industrial sector, he said.
‘For this reason, the interest spread rate in the banking sector decreased in the recent months. The spread will also decline in the months to come if the lower credit demand continues,’ he said.
The weighted average rate on lending stood at 13.42 per cent in November while the interest rates on deposits were paid at 8.45 per cent, the BB data showed.
In October of 2013, the average lending rate was 13.42 percentage point and average deposit rate was 8.47 percentage point.
The BB data, however, showed that 23 banks had maintained the interest spread rate at more than five percentage point in August, violating the central bank’s direction.
The BB official said that the central bank frequently asked the scheduled banks to maintain interest spread rate below five percentage point so that the businesspeople could get bank loans at a reasonable rate of interest, the BB official said.
The average spread of the four state-owned commercial banks was 3.22 percentage point in November while it was 5.23 percentage point in the private commercial banks, 8.44 percentage point in the foreign commercial banks and 2.79 percentage point in the specialised development banks. 

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