BB caps banks' lending-deposit spread at 4 percentage points

Bangladesh Bank has instructed banks to keep the weighted average difference between their lending and deposit rates, known as the intermediation spread, within 4 percentage points for all sectors except credit cards and consumer finance.

The central bank issued a circular today, saying the decision was taken to ensure that borrowing costs remain reasonable for businesses and productive sectors.

The BB said that after the introduction of the market-based interest rate regime in May 2024, no specific limit on the intermediation spread had been in place. As a result, many banks widened the gap between lending and deposit rates by raising lending rates more sharply than deposit rates.

According to the circular, the unusually high intermediation spread has increased financing costs for businesses and industries, hampering economic activity and industrial growth.

To address the issue, Bangladesh Bank has directed banks to maintain the weighted average spread between lending and deposit rates at no more than 4 percentage points for all loans, except those extended through credit cards and consumer finance.

The central bank issued the instruction under the powers vested in it by the Bank Companies Act, 1991, and said the directive takes effect immediately.