Interest rate spread in the country's banking sector decreased in July, as the commercial banks slashed their interest rates further on lending than deposit, officials said.
The weighted average spread between lending and deposit rates offered by the banks came down to 4.31 per cent in July 2018 from 4.45 per cent in the previous month, according to the latest official figures.
The spread was same at 4.45 per cent in May. But it was 4.46 per cent in April.
The falling trend of spread came against the backdrop of the banks' revising interest rates on both lending and deposit downward in line with the decisions of the Bangladesh Association of Banks (BAB).
BAB earlier requested its member banks to bring down the interest rates on both lending and deposit at 9.0 per cent and 6.0 per cent respectively from July 01.
"We're now working to bring down the spread at 4.0 per cent from the existing level within a couple of months," a senior official of the Bangladesh Bank (BB) told the FE.
The central bank is now monitoring the issue closely, he said without elaborating.
Senior bankers, however, said the interest rates on lending may decrease further after implantation of the BAB's decisions properly, but the deposit rates may remain unchanged.
The weighted average rate on deposits came down to 5.40 per cent in July from 5.50 per cent a month before, and interest on lending dropped to 9.71 per cent from 9.95 per cent, the BB data showed.
Mehmood Husain, managing director (MD) and chief executive officer (CEO) of NRB Bank Limited, and Mosleh Uddin Ahmed, MD and CEO of NCC Bank Limited, also said the overall interest rate spread may come down to 4.0 per cent from the existing level within next 2-3 months.
They also said credit demand, particularly for the private sector, may fall in the coming months ahead of the general election that may help decrease the lending rates.
"The interest rates on deposits, particularly the term ones, are maintaining a declining trend, so that we may offer lower lending rates," Mr. Husain told the FE.
He also said interest rates on bank-to-bank deposit are also maintaining a falling trend.
Talking to the FE, Mr. Ahmed said: "We're offering lower interest rates on lending for continuing business relations with good corporate clients."
Coordinated efforts are needed to reduce the volume of classified loans in the country's banking sector that also helps to slash the interest rates on lending, the NCC Bank CEO explained.
The senior bankers' observations came against the backdrop of the rising trend in classified loans in the country's banking sector recently despite the central bank's close monitoring.
The volume of non-performing loans (NPLs) jumped by more than 19 per cent or Tk 142.86 to Tk 885.89 billion during the January-March period (Q1) of this calendar year from Tk 743.03 billion in the preceding quarter.
"We need social and political commitments to stop the default loan culture in the banking sector," the NCC Bank CEO noted.
The spread being maintained by at least 11 commercial banks, out of 57, still remains high. It ranges between more than 5.0 per cent and 8.68 per cent.
Average spread with the state-owned commercial banks (SoCBs) was 2.94 per cent in July 2018, the private commercial banks (PCBs) 4.33 per cent, the foreign commercial banks (FCBs) 6.99 per cent, and the specialised banks (SBs) 3.21 per cent.
Excluding consumer finance and credit card, the spread of all banks also came down to 4.23 per cent in July from 4.39 per cent of the previous month.