The weighted average interest rate gap between deposit and lending rate in banking sector remained above 5 per cent for the past 10 consecutive months, depriving depositors of significant interest earnings.
The interest rate spread refers to the difference between the interest rates charged by banks on loans and the interest rates they pay against deposits.
The higher interest rate spread indicates that banks are earning more on loans compared with what they pay against deposits.
While lending rates have increased sharply, deposit rates have not kept pace, leaving depositors with returns that lag far behind inflation, bankers said.
According to Bangladesh Bank data, the spread was 5.85 per cent in November, significantly up from 2.93 per cent in June 2023.
After February 2015, the spread crossed 5 per cent for the first time in February 2024 and since then it stayed above that level until November. The gap was 4.83 per cent in January 2024.
The spread of 6.03 per cent in June 2024 was the highest after 2008 when it reached 6 per cent.
This prolonged increase stems from escalating lending rates while deposit rates have grown at a slower pace.
The spread increased due primarily to rising lending rates amid repeated hike in the Bangladesh Bank鈥檚 policy rate.
Currently, banks are charging 5.86 per cent more on loans than they are paying on deposits.
The introduction of a 9-per cent lending rate cap on April 1, 2020 led to a sharp decline in the interest rate spread at that time. However, the spread began to increase after the central bank removed the cap in July 2023.
On May 8, 2023, the Bangladesh Bank allowed lending rates to be determined by market forces.
On October 22, 2024, the Bangladesh Bank increased the policy or repo rate further by 50 basis points to 10 per cent for containing inflation.
The BB has begun to hike policy rate sharply since May 2022 when it was at 5 per cent. It raised the policy rate for the fifth time in the current year.
Currently, many banks are charging close to 15 per cent for loans, while deposit rates have been increasing gradually, albeit more slowly than lending rates, contributing to the higher spread.
In November, banks offered an average interest rate of 5.99 per cent for deposits and charged an average of 11.84 per cent for loans, resulting in a spread of 5.85 per cent, according to Bangladesh Bank data.
The Bangladesh Bank removed the limitation of keeping the spread below 4 per cent in November 2023 as the lending rate ceiling was scrapped.
To ensure sustainable business operations, banks must maintain a certain profit margin, experts said.
While lending rates have been raised, there has been no systematic increase in deposit rates, which has resulted in deposit rates remaining significantly below the country鈥檚 inflation rate, which has been above 9 per cent since March 2023.
The inflation rate was 11.38 per cent in November 2024 and 10.89 per cent in December 2024, while the average deposit rate was 5.99 per cent as per available data in November last year.