Twenty-seven banks are not following the directives of the central bank to cut down the interest rate spread.

Bangladesh Bank has long been asking these banks to bring down their spread, the gap between the interest rates on credit and deposit, to the permissible limit of 5 percent.

The spread at the 27 banks is more than 5 percent. Six banks have more than 7 percent spread, according to data from the central bank.

In a bankers' meeting last week, all banks were advised to bring down their spread below 5 percent.

Chief executives of all banks attended the meeting, presided over by Governor Atiur Rahman.

A central bank official said, due to an unhealthy competition, some banks are giving higher interest on deposit, and as a result, the rate of interest on credit is going up.

In the meeting, the BB placed a report on the rate of interest on credit and deposit.

The report said the upper cap of the rate of interest on credit was withdrawn earlier. It resulted in an upward trend in the rate of interest on credit and deposit in the banking sector.

The BB official said the spread in the private and foreign banks is higher than that in other banks.

The central bank on several occasions has warned a number of banks that were offering higher interest on deposit, said the official.

A bank was fined under the Banking Company Act for offering higher interest than its announced rate, said the report.

But even after that the bank continued offering higher interest.

The BB report said, due to the higher rates of interest, credit flow into small and medium enterprises is being hindered.

Some weak banks are hampering the healthy competition in the banking sector, said the managing director of a private commercial bank.

These banks resort to various ill practices to attract depositors, the official said, requesting not to be named. "As a result, other banks have to increase their rate of interest as well."

Another official of a private bank said, if the rate of interest on deposit could be kept low, the rate of interest on credit will also remain low and in turn the spread will come down.

He said the central bank should strengthen monitoring so that banks do not go for any unhealthy competition.

News: The Daily Star/Bangladesh/20-Sep-12