Spread again crossed 5 percent in June after two months to pave the way for banks to make more profit in the face of the rising trend of their excess liquidity.
The spread, which is the difference between deposit and lending rates, rose mainly due to a fall in deposit rates and a hike in lending rates, meaning banks maintained profit depriving the savers.
In the last one year the banks’ excess liquidity increased by 74 percent, according to Bangladesh Bank statistics, and, to offset its negative impacts the banks went for an easy solution by cutting their deposit rates.
The banks’ spread rose to 4.99 percent in March for the first time in recent months. Though the spread came down to 4.98 percent in May, it again jumped to 5.13 percent in June.
The weighted average lending rate increased by 0.04 percentage point and stood at 13.67 percent in June compared to the previous month, according to central bank data.
The lending rate had been falling gradually every month since October last year and it stood at 13.63 percent in May.
However, the deposit rate decreased by 0.11 percentage point to 8.54 percent in June compared to the previous month.
Deposit rate had increased almost every month since July last year, and till February it continued to go up but later started falling.
Khondkar Ibrahim Khaled, a former deputy governor of the BB, said the banks raised their lending rates but cut the deposit rates to offset the fall in their profit, which widened their spread.
By doing so, Khaled said, the banks have deprived the depositors. Though the practice is not unjust legally, it was unethical morally, he said.
Khaled also said the banks increased the lending rates as an immediate solution, which will have a negative impact on investment as it would raise the cost of doing business.
The excess liquidity reached a record high as the banks could not invest their money in recent times.
The excess liquidity has been increasing every month and the amount reached Tk 79,441 crore in June, up from Tk 45,676 crore a year ago.
Private sector credit growth slowed partly due to a sluggish investment demand in the lead up to the national elections, according to the half-yearly monetary policy statement of the central bank released last week.
The BB also identified two other factors—tighter lending practice by banks as well as the fact that there are two new channels through which entrepreneurs can access overseas lenders.
The central bank in recent times has been allowing foreign borrowing so that pressure mounts on the domestic banks to reduce lending rates. But the recent trend shows that the banks have been increasing lending rates again.
The spread at state-owned banks is 3.66 percent, private banks 5.34 percent and foreign banks 8.59 percent, according to the BB.
The spread is abnormally high at some foreign banks.
The weighted average deposit rate of a foreign bank is 2.13 percent, whereas its lending rate is 11.96 percent.
Source The Daily Star
