18 banks’ average lending rate falls below 7pc in April

The weighted average lending rate of 18 banks dropped below 7 per cent in April 2021 as the banks were desperately trying to lure customers amid a very poor credit demand from the businesses.

Besides, the deposit rate of 19 banks dropped below 4 per cent in the month under consideration as the banks were reluctant to attract savers at a time when they were holding excess liquidity in their hand.

Amid the significant decline in deposit and lending rates in the last one year, 27 banks have managed to enhance their interest rate spread while the spread of 31 banks has dropped during the period.

The overall interest rate spread in the country’s banking sector, however, returned above 3 per cent after it fell below 3 per cent following the implementation of a 9-per cent lending rate cape just after the outbreak of Covid-19 in the country.

Due to the outbreak of coronavirus and the subsequent economic fallout, the credit disbursement from the banking sector has remained dull though the Bangladesh Bank has so far injected a huge amount of liquidity in the banking system by implementing stimulus packages and against the purchase of dollars from the local market.

As a result, excess liquidity in the country’s banking system increased to Tk 1,98,115.64crore in March 2021 from Tk 64,249.1 crore in March 2020.

Though the central bank has supplied adequate liquidity to make money available for economic recovery, the private sector credit growth remained far away from the BB’s projection with the achievement of just 8.29 per cent in April against the projection of 14.8 per cent growth for FY21.

Governments across the globe have taken expansionary monetary policies in the last several years to boost economic activities of their respective countries, BB executive director MdHabibur Rahman told.

Bangladesh too has adopted expansionary fiscal and monetary policies with a view to expediting economic activities, Habibur said.

Amid the implementation of the expansionary monetary policies, including imposition of cap on lending rate, the Covid outbreak has resulted in a severe fall in credit demand due to the pandemic-induced economic shocks, he said.

As a result, banks are holding a high volume of excess liquidity that has prompted them to lower lending rate to increase credit disbursement, he said, adding that the banks, at the same time, lowered their deposit rate as there were no requirements of funds for most of the banks.

Asked whether banks would be able to sustain profitability, Habibur said that the profitability of the banks would not be impacted much as their cost of funds had dropped.

The latest BB data showed that the weighted average lending rate of Janata Bank, Rupali Bank, Sonali Bank, BASIC Bank, Bangladesh Development Bank, Habib Bank, Citibank NA, Commercial Bank of Ceylon, National Bank of Pakistan, Woori Bank, The Hong Kong and Shanghai Banking Corporation, Bank Al-Falah, Islami Bank Bangladesh, National Bank, Southeast Bank, Bangladesh Commerce Bank, Padma Bank and ICB Islamic Bank dropped below 7 per cent in April.

The weighted average deposit rate of Standard Chartered Bank, State Bank of India, Citibank NA, Commercial Bank of Ceylon, National Bank of Pakistan, Woori Bank, The Hong Kong and Shanghai Banking Corporation, Bank Al-Falah, The City Bank, United Commercial Bank, Shimanto Bank, Eastern Bank, National Credit & Commerce Bank, Prime Bank, Dutch-Bangla Bank, Bank Asia, Trust Bank, BRAC Bank and ICB Islamic Bank dropped below 4 per cent.