The central bank asked banks to narrow their interest-rate spread through lowering both operational costs a+nd classified loans to shun interest squeeze on deposits.

Officials said the major issues troubling the banking system were discussed at a last bankers' meeting held in the central bank headquarters in Dhaka with the Bangladesh Bank (BB) Governor, Fazle Kabir, in the chair.

The banks had already been instructed to remain pro-active and help check the falling interest rates on deposits.

BB's latest move came against the backdrop of recurrent fall in the interest rates on deposits in recent times.

"As part of persuasion, we're advising that the banks reduce their interest-rate spread, particularly lowering lending rates, to facilitate local investment in different sectors," a senior BB official told the FE Wednesday.

He also said the banks had already been advised to reduce the spread through improving their efficiency as well as profitability both instead of slashing the interest rates on public deposits.

"The banks will have to reduce the amounts of non-performing loans (NPLs) immediately for improving their overall financial health," the central banker noted.

The classified loans jumped by more than 21 per cent or Tk 108.01 billion in the last calendar year despite close monitoring by the central bank.

The aggregate amount rose to Tk 621.72 billion as on December 31 last from Tk 513.71 billion the same day of the previous year, the BB data showed.

Meanwhile, the bank's interest rates on lending decreased slightly in the month of March following persuasion of bankers continuously by the BB.

The weighted average interest rates on lending fell to 9.70 per cent in March last from 9.77per cent in the previous month while interest rates on deposits came down to 5.01 per cent from 5.08 per cent.

On the other hand, overall spread in the country's banking sector remained unchanged in March as the banks slashed their interest rates on both lending and deposit equally.

The weighted average spread between lending and deposit rates offered by the commercial banks stood at 4.69 per cent in March 2016 unchanged from the previous month, according to the central bank latest statistics.

The spread being maintained by at least 14 commercial banks out of 57 still ranges as high as between more than 5.0 per cent and 8.38 per cent.

Average spread with the six state-owned commercial banks (SoCBs) is 4.01 per cent, private commercial banks (PCBs) 4.73 per cent, foreign commercial banks (FCBs) 6.38 per cent and specialised banks (SBs) 3.37 per cent.

Excluding consumer finance and credit card, the spread of all banks also came down to 4.59 per cent in March 2017 from 4.60 per cent a month ago.

Talking to the FE, a senior official of a leading private commercial bank also said the banks may not be able to reduce the spread further without decreasing the amount of NPLs.

He also said there is no scope to slash interest rates on deposits further considering the inflationary pressure on the economy.

The rate of inflation was 5.41 per cent in February 2017 in a drop from 5.44 per cent of the previous month on a 12-month-average basis, according to Bangladesh Bureau of Statistics (BBS) data.