Abu Sazzad :
Maximum private commercial banks (PCBs) of the country have failed to reduce their spread as the deposit rate is falling faster than the lending rate.
Huge number of classified loans and higher expenditure is the foremost reason for increasing spread, a difference between the lending rate and deposit rate, among the PCBs, banking sources said.
Bangladesh Bank Executive Director M Maffuzur Rahman said the central bank has recently instructed all commercial banks to reduce their spread and lending rates. The central bank also advised them to keep their spread within 5 per cent.
Of the local private banks, BRAC Bank always maintains the highest spread. At the end of March, the bank’s weighted average interest rate on deposit was 5.37 per cent against the weighted average interest rate on advances was 15.10 per cent. The bank’s spread during the month reached the highest 9.73 per cent among all private banks.
A high official of BRAC Bank, on the condition of anonymity, told The New Nation on Monday that the bank mainly involves in SME lending in the rural areas, which requires high supervision.
Actually, he said, the bank charge high interest rate to absorb risk as most of the SME loans are without collateral. In this backdrop, the spread of the bank is higher, which also put pressure on overall spread, he added.
Meanwhile, a senior official of the central bank said despite lower deposit rate of 5 per cent, the general investors prefer Dutch-Bangla Bank more due to its technological facilities. The bank maintains highest number of ATM booths both in rural and urban areas. As a result, the bank does not need to offer high deposit rate.
The Dutch-Bangla’s weighted average interest rate on deposit was 4.20 per cent at the end of March against the weighted average interest rate on advances was 11.67 per cent.
Despite low cost deposit, the bank lend at the market average interest rate, which resulted in higher spread. The spread of Dutch-Bangla Bank was 7.47 per cent during the month, the central bank official said.
Of the local banks, AB Bank, The City Bank, IFIC, Pubali Bank, Uttara Bank, National Credit and Commerce Bank, Dhaka Bank, ONE Bank, Exim Bank, Premier Bank, Bank Asia, Trust Bank and Shahjalal Islami Bank maintain the spread beyond the expected level of 5 per cent, sources said.
At the end of March, the spread of AB Bank was 5.87 per cent while it was 6.21 per cent for The City Bank, 5.71 per cent for IFIC Bank, 5.33 per cent for Pubali Bank, 6.10 per cent for Uttara Bank, 5.23 per cent for NCC Bank, 5.10 per cent for Dhaka Bank, 6.34 per cent for ONE Bank, 5.49 per cent for EXIM Bank, 6.11 per cent for Premier Bank, 5.49 per cent for Bank Asia, 5.35 per cent for Trust Bank and 5.15 per cent for Shahjalal Islami Bank.
The spread of these banks is higher as they maintain low cost deposit but lend at a higher interest rate.
Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) Vice-President Md Helal Uddin demanded to reduce the spread so that the business community can avail low rate commercial loan which would facilitate them to operate their business smoothly. Actually, low deposit rate and high lending rate is one of the major obstacles for expanding industrial growth, said the FBCCI leader.
Economist M Mamunur Rashid said the existing gap between lending and deposit rate or spread is abnormal comparing with other South Asian countries. According to a World Bank report released recently on global financial development, 2014, the spread of China was 3.1 per cent, Vietnam 2.4 per cent, Malaysia 2.5 per cent, and Thailand 4.8 per cent, said the economist.
In fact, he said, the financial institutions in Bangladesh have very narrow products and the major income comes from interest on loan and that is why reducing spread is a difficult task but not impossible.
He, however, suggested bringing down spread between lending and deposit rates of banks for creating a business friendly environment in the country.
