Bangladesh Bank has capped the spread between lending and deposit rates at a maximum of 4% in a move aimed at preventing banks from arbitrarily raising loan interest rates and easing borrowing costs for businesses.
In a circular issued on Monday, the Banking Regulations and Policy Department-1 (BRPD) directed all scheduled banks to comply with the new instruction, which will apply to all types of loans except credit cards and consumer loans.
The central bank said the decision was taken as several banks were increasing lending rates significantly compared to deposit rates, resulting in an unusually wide interest spread that was raising costs for businesses and industrial borrowers.
According to the circular, previous instructions on interest rate spreads were withdrawn in November 2023 when the Smart (reference rate and margin-based) lending system was introduced. Later, a fully market-based interest rate regime was adopted in May 2024, but no cap on spreads was set at that time.
Bangladesh Bank noted that in recent months, many banks have kept deposit rates relatively low while sharply increasing lending rates, widening the average spread to more than 5% in some cases. In extreme instances, the spread has reportedly reached 8% to 10%.
Under the new directive, the weighted average difference between lending and deposit rates must not exceed 4% for all loans, except credit cards and consumer financing. The instruction has been issued under Sections 29(2)(c) and 45 of the Bank Companies Act, 1991, and is effective immediately.
Officials said banks currently offer average deposit rates of around 6.5% while charging loan rates above 12%. The central bank expects the new cap to bring lending costs down, encourage investment, and support industrial and business growth.
Bangladesh Bank officials added that although market-based interest rates were intended to improve efficiency, some banks had widened spreads excessively, increasing financial pressure on borrowers. The new measure is expected to restore balance in the banking sector.
TZ
