The New Nation - Internet Edition

BUSINESS REPORT

Commercial banks took around eight years to reduce the spread between lending and deposit rates of interest by about one percentage point, mainly depriving their depositors.

The interest rate spread (IRS) declined by 0.97 percentage points between June 2001 and March 2008, according to the Policy Analysis Unit (PAU) of Bangladesh Bank.

During the period, the deposit rate declined by 1.10 percentage points as against lending rate reduction of only 0.13 percentage points, said a Financial Sector Review (FSU) released by PAU on Wednesday.

The PAU is to assist the Bangladesh Bank in promoting and maintaining macroeconomic and price stability conducive to rapid growth and sustainable poverty reduction through research and policy analysis.

The central bank has long been asking commercial banks to reduce the IRS below 5 percent, not through cutting from the deposit rate but from their lending rates, to stimulate investment and economic growth.

Chief Adviser Dr Fakhruddin Ahmed had also instructed the central bank to take measures to reduce the spread.

Bangladesh Bank had talks with the commercial banks, particularly the private banks, repeatedly requesting them to comply with the economic requirement.

Meanwhile, the FSR cautioned that there exist credit as well as liquidity risks in the financial market of the country and suggested establishment of a competitive banking and non-bank sector as one of the priorities in the financial sector policies.

The competitiveness should be developed with the ability to overcome the maturity-mismatch and the default loan problems, it said.

The analysis acknowledged Bangladesh Bank's measures to develop the capacity of the financial sector to reach out to all sections of the community.

The measures included implementing financial sector reforms and adopting new policies like restructuring the government-owned commercial banks (GCBs), establishing secondary market for all types of bonds and securities, and opening up of the financial sector to global level by ensuring financial regulation and supervision.

"As such promoting healthy competition in the banking sector remains the corner stone of the country's financial policy stance," said the analysis by the PAU.

It added that efficiency, competition, cost effectiveness, good governance, and ensuring corporate social responsibility would be the basis of ensuring efficient financial inclusion of the poor and the unbanked, and minimizing risks in the financial sector.

"BB has taken initiatives so that the Basel II norms of capital adequacy are fulfilled in a time bound manner," it said.

The PAU emphasised on sound regulation and supervision for the success of the efforts to bolster the financial system through ensuring capital adequacy and fighting money laundering effective