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Faculties and Departments => Business & Entrepreneurship => Topic started by: Rozina Akter on June 05, 2013, 12:21:45 PM

Title: Average interest-rate spread comes down
Post by: Rozina Akter on June 05, 2013, 12:21:45 PM
The weighted average spread between deposit and lending rates of the commercial banks have started showing a modestly declining trends indicating lower cost of funds (deposits) for banks and also lower rate of interest on their credits than what they were late last calendar year.

This spread, according to the latest available official data, came down below 5.0 per cent in April, 2012. It has continued to maintain the same trend until now, according to sources.

Unofficial figures indicated that the average interest rate spread has lately come down to around 4.20 per cent. An insider in the banking circle indicated that the enable amount of money, reflecting partly the excess liquidity in the banking sector, has now reached the level of Tk. 200 billion from Tk. 130 billion in --- last. Because of this amount, being amiable in excess of what the banks could disburse as credits and loans, the call money rate - the rate at which banks borrow funds are might from themselves, is now hovering around 7.0 per cent against 12.00 per cent four months' back.

The Bangladesh Bank (BB) instructed earlier all the scheduled banks to reduce the interest rate-spread at a level not exceeding 5.0 per cent within March last.

Monthly weighted average rate of interest on lending and deposit came down to 4.99 per cent in April, 2013 from 5.06 cent in March, 2013, according to the statistics of the BB.

The average interest rate spread of the scheduled banks stood at 5.05 per cent in February, 5.13 per cent in January, 5.33 per cent in December and 5.41 per cent in November last, according to the BB statistics.

The lending rate means the interest rate that a bank charges on its loans and credits and the deposit rate means the interest rate it offers to a client on account of his or her deposit kept with it.

The spread in the cases with a number of private and foreign banks was relatively higher than that of other banks, according to the latest compiled data of the BB until April last.

"It is a good sign that the banks have been able to lower their interest rate-spread at last, but the reduced percentage of spread by the banks is not enough. The spread will have to come down further in the days to come", a high BB official told FE Monday.

"If any bank does not bring down the spread to 5.0 per cent within next couple of months, we will restrict some of facilities that are given to them for expansion of businesses," he added.

However, the BB, its officials said, does not like to force any bank in matters of fixing its lending and deposit rates through any administered arrangement.

Banks enjoy their operational freedom in fixing their lending and deposit rates under market-driven conditions, the concerned sources stated.

All banks are instructed by the BB to comply with its directive on cutting the spread to the level below 5.0 per cent in every monthly meeting of bankers with the BB. Generally, the chief executives of all banks attend the meeting.

The BB will strengthen its monitoring arrangement further so that the banks do not go for any unhealthy competition for mobilizing deposits, considering the fact that higher deposit rate leads automatically to higher lending rate.
A senior official at a private bank said if the rate of interest on deposit could be kept low, the lending rate on credits would also remain low, resulting in the decline in spread.
Meanwhile, some analysts are of the view that the deposit rate is closely linked with the rate of inflation. If the rate of inflation is higher then the rate of deposit, the rate of return will be negative on their deposits with banks, in the sense of erosion of the real worth of their deposited amount of money in relation to the command over goods and services, they noted.
Such analysts stressed the need for maintaining a positive rate of return on deposit so that the real value of depositors funds does not decline. If the latter declines, then deposits will hardly have any real incentive to keep their funds as deposits with banks, they observed.
They highlighted the need for reining in the rate of inflation in order to make it possible to attract deposits by lowering the rate.
The 12-month average rate of inflation stood at 7.85 per cent in April last, according to the latest figures of Bangladesh Bureau of Statistics
Furthermore, the rates of return on other avenues like savings certificates of the government, the state of affairs in the stock markets and a number of their factors have a bearing on deposit mobilisation efforts by banks and rates thereof, they noted.

Source:Financial Express

Title: Re: Average interest-rate spread comes down
Post by: saimonh on July 22, 2013, 02:24:57 PM
nice post...
Thank you
Title: Re: Average interest-rate spread comes down
Post by: Rozina Akter on July 29, 2013, 02:19:32 PM
Thank you Saimon