Banks cut rates more in Dec amid lean loan demand [ Tritiyo Matra News ]

Banks cut rates more in Dec amid lean loan demand

Local February 06, 2016

The scheduled banks cut rates of interest on lending further in December last year as the businesspeople continued to show reluctance to receive loans from the banking sector due to sluggish business amid political uncertainty, said officials of Bangladesh Bank.
According to the latest BB data, the weighted average interest rate on lending in the banking sector
declined to 11.18 percentage points from 11.27 percentage points in November of 2015.
The weighted average interest rate on lending continued to decline in recent months as it was 11.35 percentage points in October, 11.48 percentage points in September, 11.51 percentage points in August, 11.57 percentage points in July, 11.67 percentage points in June, 11.82 percentage points in May, 11.88 percentage points in April, 11.93 percentage points in March, 12.23 percentage points in February and 12.32 percentage points in January of last year.
The lending rate in the banking sector maintained the downward trend as banks were forced to decrease the rate due to a sluggish credit demand from the businesspeople amid the political unease, a BB official told New Age on Thursday.
The BB data showed that the weighted average interest rate on deposit of the banks also decreased to 6.34 percentage points in December from 6.46 percentage points in November of 2015.
However, the interest spread rate, the gap between the interest rates on credit and deposit, slightly increased to 4.84 percentage points in December from 4.81 percentage points in November.
The BB official said that the interest spread rate increased in December as the rate of interest on loans and advances decreased more than that of interest rate on deposits.
He said that majority of the banks had recently cut their interest rates both for deposits and lending as they were now facing dull business.
The country’s businesspeople have adopted a ‘wait and see’ approach to expansion of their business by taking loans from banks due to the sluggish business trend, he said.
Due to the lower credit demand from the industrial sector, banks are now facing huge excess liquidity that is forcing them to rush for the government treasury bills and bonds.
The BB data showed that interest rates on all types of T-bills and bonds dropped in recent months as most of the banks submitted bids worth huge amount of money at the central bank’s auctions for the government tools to invest their idle fund.
The BB official said that banks cut their rates of interest on lending throughout last year to encourage entrepreneurs but their (businessmen’s) response was yet to reach to a satisfactory level.
Due to the lower credit disbursement, banks also cut the rates of interest on deposit to discourage the depositors so that they (banks) get a respite from the burden of paying the interest, another BB official said.
The central bank frequently asked the banks to disburse more credit to SME and agriculture sectors to stimulate the private sector credit growth.
Due to the sluggish business trend, the BB cut the target of the private sector credit growth to 14.80 per cent for the financial year 2015-16 from the previous rate of 15 per cent for the financial year.
The BB data showed that the weighted average rate on lending in the state-owned commercial banks stood at 10.80 percentage points in December, that in specialised development banks at 9.62 percentage points, that in foreign commercial banks at 9.74 percentage points, and that in private commercial banks at 11.65 percentage points.
The weighted average rate on deposit in the state-owned commercial banks stood at 6.38 percentage points in December, that in specialised development banks at 7.84 percentage points, that in private commercial banks at 6.51 percentage points, and that in foreign commercial banks at 2.59 percentage points.