A significant rise in gains from the differences between the two rates was recorded in July as spinoffs from the regulatory reference rate styled Smart
Lending-matrix Smart is finally coming to use for bankers as they make profits from wide spread between the interest rates they provide to depositors and take from borrowers.
A significant rise in gains from the differences between the two rates was recorded in July as spinoffs from the regulatory reference rate styled Smart.
Officials and bankers said that the central bank’s monetary policy shift from monetary targeting to interest rate targeting paid off for the country’s commercial banks which saw the greatest spread in 40 months to July last.
Such leap between the difference of weighted average deposit and lending rates — encoded as spread in banking parlance — gives some sorts of respite to the banks which had witnessed their core incomes squeezing since the imposition of the lending cap of 9% on April in 2020, according to sector insiders.
According to data with Bangladesh Bank (BB), the central bank, the weighted average spread rose to 3.29% in July, up by 36 basis points from June’s 2.93%.
The official data showed the July spread figure as the highest since March in 2020 when it was 4.07%.
In the first five months of this year, the average spread for banks was 2.95%, 2.96%, 2.96%, 2.91% and 2.91% in January, February, March, April and May respectively.
On July 2023, the central bank as part of its shift in monetary-policy stance to interest-rate-targeting mechanism introduced a market-based reference rate called Six-Month Moving Average Rate of Treasury Bill (Smart) rate through which the banks are allowed to fix their lending rate by adding up maximum 3 percentage points to the benchmark rate.
With the implementation of the newly benchmark rate-driven interest regime on the money market, the controversial lending cap of 9% was uncapped and banks were allowed to charge a maximum 10.10% as the Smart rate, which is now 7.10%.
Source: Dhaka Tribune.