The New Nation - Internet Edition

BUSINESS REPORT

Country's private commercial banks will raise interest rates by up to three percentage points for deposits to narrow the gap with lending rates which have also come down, a senior bank official said yesterday.

Private banks have already agreed to cut lending rates by up to three percentage points following orders from the central bank, concerned about the competitiveness of Bangladeshi goods.

"The new rates will come into effect from tomorrow (Sunday)," said a senior official of the Bankers Association of Bangladesh (BAB).

Bangladesh Bank had earlier asked all private banks to narrow the gap between lending and deposit rates, officials said. "We took the measures after considering demands from the business group," the official, who is also the managing director of a leading private bank, told The New Naion.

About half of private commercial banks have increased their interest rates on deposits to reduce the spread between lending and deposit rates and to encourage depositors to keep their money with banks, he said.

"All the private commercial banks are now willing to bridge the gap at around 5 per cent from the existing 6.06 per cent by June this year, a deadline set by the central bank," the BAB official said.

Commercial banks now offer interest rates of between 12 per cent and nearly 13 per cent on fixed deposits and saving accounts, officials said.

The private commercial banks will charge up to 14 per cent for term loans and working capital, down from 16 to 17 per cent now.

The central bank's official bank rate is at 5 per cent. In money market operations, it currently provides funds to banks at 8.50 per cent and drains surplus funds at 6.50 per cent.

The average lending rate of banks was 12.77 per cent in 2007 and 12.60 per cent in 2006, while the average deposit rate was 6.85 per cent and 6.99 percent, respectively.

Despite difficult business conditions as a result of political uncertainty, the country's private commercial banks earned nearly 40 per cent more operating profit in 2007 than the previous year, officials said.