SCB and DBBL charging highest spread 8.4pc
Abu Sazzad: About 29 commercial banks have become failure to maintain their spread within the fixed ceiling of the Bangladesh Bank. Some 29 banks spread are still high from the prescribed ceiling in the last year because the commercial banks increased their interest rates equally on both deposit and lending. The spread of 29 banks were above the 4 percent ceiling which is a complete violation of the central bank guideline.
The spread of foreign commercial banks and private commercial banks are higher from the state-owned commercial banks. Out of the foreign commercial banks, Standard Chartered charging the highest 8.47 percent spread till December last. However, the spread of State Bank of India was 5.21 percent, followed by Citibank NA for 6.60 percent, Commercial Bank of Ceylon for 5.15 percent, Worri Bank for 6.79 percent, The Hong Kong and Shanghai bank for 6.43 percent, Bank Al-Falah 5.19 percent.
On the other hand, out of the local private commercial banks, Dutch-Bangla Bank charging the highest 8.41 percent spread, followed by AB Bank for 6.83 percent, 4.63 percent for The City, 4.38 percent for United Commercial, 4.16 percent for Pubali, 4.75 percent for Uttara, 5.20 percent for Simanto, 4.40 percent for Eastern , 4.78 percent for Prime, 4.17 percent for Dhaka, 4.28 percent for Standard, 4.75 percent for Premier, 4.45 percent for Bank Asia, 4.35 percent for Trust, 5.01 percent for Shahjajalal Islami, 4.72 percent for Jamuna, 7.12 percent for BRAC, 5.59 percent for NRB Commercial, 4.22 percent for Midland, 4.24 percent for NRB, 4.89 percent for Modhumoti and 4.26 percent for ICB Islamic Bank Ltd, according to the latest data of Bangladesh Bank.
Bankers said banks are failing to reduce their interest spread for rising higher non-performing loans (NPLs) in the recent years. Banks are forcing to collect their deposit through offering higher deposit rate which is the reason to provide advance at a higher rate.
According to the latest policy of Bangladesh Bank, commercial banks were asked to keep their intermediation spread between the lending and average deposit rates within 4.0 percent.
Interest rate spread remains high despite the close monitoring of the central bank, said a senior central bank official. The commercial banks increased their interest rates equally on both deposit and lending, he said.
“Now, we are sincerely working to bring down the spread to 4.0 percent from the existing level shortly but it is hampering for higher operation costs of the banks” he added.
Senior bankers predicated that the rising trend in interest rates on deposit may continue in the coming months to meet the growing demand for fresh funds.
Experts said, in recent times, policy makers, private businesses and economists have become increasingly vocal in expressing their concern over the persistence of high interest rate spread (IRS) in the banking sector.
The concern emerges from the apprehension that high IRS acts against stimulating private investment and hence economic growth in the country and is a reflection of inefficiencies in the banking system, they opined.
It is argued that high cost of borrowed fund filters out economically viable projects and reduces their expected returns with consequent adverse impact on private investment. On the other hand, low deposit rates discourage savings mobilisation, they observed.
Despite the removal of restrictions and reforms in the banking sector to facilitate the adoption of a market oriented interest rate policy, interest rates are yet to become fully responsive to the market. In this context, the Bangladesh Bank (BB) as the regulatory authority of the country’s banking and financial system has taken steps to persuade the banks to reduce the IRS in a rational manner.
Md Arafan Ali, Managing director of Bank Asia said, “The demand for fresh liquidity may rise before implementation of the Bangladesh Bank (BB)’s policy for offshore banking operation of the banks.”
Selim RF Hussain managing director and CEO of the BRAC Bank said they usually provide SME loans and the interest rate on SME loan is a little higher. As a result, reducing spread is a bit difficult for us, but the authorities concerned are trying to reduce the rate.
Stressing the importance of reducing interest rate, Centre for Policy Dialogue research director Khondakar Golam Moazzem said that there was huge scope for reducing lending rate just by reducing the interest rate spread that had remained high in Bangladesh.
In many countries, the interest rate spread is set at 3 per cent and they are doing well with the rate, he said.
He has underscored the need for reducing spread for rapid industrialisation in the country.