Some 28 scheduled commercial banks have failed to keep their spreads within the targeted 5 per cent in the last month (June) of the just concluded fiscal year 2013–14.
The banks’ average spread stood at 5.31 per cent in June, which was the highest rate during the last fiscal.
Spread refers to the difference in borrowing and lending rates of financial institutions in nominal terms. The average spreads of nationalised and specialised banks, however, remained within the central bank’s prescribed rate, barring BASIC Bank. But the situation is a little different in cases of the private commercial banks (PCBs) and foreign commercial banks (FCBs), the rates of which were over 5 per cent, reports the Independent.
Among the private commercial banks, AB, The City, IFIC, Pubali, Uttara, Eastern, Prime, Southeast, Dhaka, Social Islami, Dutch-Bangla, ONE, EXIM, Bangladesh Commerce, Premier, Bank Asia, Jamuna and Brac Banks’ spreads were above 5 per cent. Among the newly established banks, Midland Bank’s spread was over 5 per cent. Among the nine FCBs, eight banks also failed to keep their spreads within 5 per cent. These FCBs are Standard Chartered, State Bank of India, Habib, Citi Bank NA, Commercial Bank of Ceylon, Woori, HSBC and Bank Al-Falah.
The Bangladesh Bank (BB) noted that the average spread stood at 5.22 per cent at the end of May last fiscal while it was 5.14 per cent in April, 5.15 per cent in March, 5.06 per cent in February and 5 per cent in January last.
Despite repeated reminders by the central bank, most of the banks seem reluctant to reduce their spreads between the interest rates on lending and deposits, mainly due to higher operational costs. Surprisingly, instead of the rate declining, the average spread of the banks has started witnessing an upward trend in recent days.
The central bank has long issued instructions to the commercial banks to keep their spreads below 5 per cent with a view to reducing the high lending rate. The central bank issued a circular on January 27, 2012, asking the banks to reduce their spread rate to within 5 per cent by March 2013.
Yet, the spread has been increasing gradually because of the BB’s poor monitoring system and increase in operational costs of banks, explained former BB governor Salehuddin Ahmed. “Mere instructions are not sufficient; rather, it requires strict surveillance and strong monitoring, which ultimately help in reducing the spread from the banking sector,” the former BB governor told this reporter.
Talking to this reporter, BB executive director M Mahfuzur Rahman said the central bank holds frequent meetings with chiefs of all banks after every three months and discusses the overall performance and issues necessary instructions to keep the spread within 5 per cent.
Earlier, central bank governor Dr Atiur Rahman warned the banks to keep their spreads within the mandated level. “Banks will not get permission for opening new branches if they exceed the targeted spread,” cautioned the governor.
Despite the central bank’s warnings and instructions, most of the banks failed to carry out the instructions towards reducing the spread, said economist MM Akash. He described this trend as an “ominous” one for economic development. The BB needs to impose exemplary punishment on the banks that violate its instructions, said the economist.
Expressing his resentment, Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) vice president Md Helal Uddin said the country’s banking sector fails to provide low interest credit facilities because of its higher spread.
“High spreads are hindering the business sector as well as the country’s economic development,” Helal pointed out.
He urged the central bank to take proper measures against banks who fail to reduce their spreads.
Banks have to definitely reduce the spreads so that they can provide low interest loans for the betterment of the business community as well as the economy, he added.