The Bangladesh Bank has capped the spread between banks’ average lending and deposit rates at 4 percent, acting to keep borrowing costs for industry and other productive sectors at a reasonable level. The directive, issued on Monday, takes effect immediately.

A circular from the central bank’s Banking Regulation and Policy Department-1 was sent to the managing directors and chief executives of all scheduled banks in the country. It mandates that the gap between average interest rates on all loans and deposits — excluding credit cards and consumer finance — must not exceed 4 percent.

The Bangladesh Bank said many banks were charging significantly higher lending rates relative to their deposit rates. Their intermediation spread has widened markedly, hurting trade, commerce and industrial growth. The new ceiling aims to keep loan pricing within a logical range.

The circular notes that the regulator scrapped the spread limit in November 2023, when it adopted the SMART-based lending rate formula tied to the six-month moving average rate of treasury bills. When Bangladesh moved fully to a market-based interest rate regime in May 8, 2024, no spread cap remained in place for banks.

Central bank has since found that some banks raised lending rates far more aggressively than deposit rates after the switch. This piled pressure on borrowers and created obstacles to business expansion, prompting the fresh move to reimpose the spread limit.

Bangladesh Bank’s new 4 percent spread ceiling will force most lenders to cut their borrowing rates. Banks that do not must lift deposit rates instead.

Of the 61 scheduled banks, 56 now report a spread above the cap, with some touching nearly 10 percent. Nine foreign banks carry the highest average spread at 8.40 percent. Six state-owned commercial banks average 5.64 percent, while 43 private commercial banks average 5.58 percent. Three specialised government banks record the lowest average, at 3.31 percent.

Standard Chartered Bank leads the field with a May spread of 9.68 percent. Dutch-Bangla Bank comes second at 9.09 percent, and State Bank of India and National Bank of Pakistan report 8.01 percent and 7.93 percent respectively.

Other domestic banks in the upper range include United Commercial Bank at 7.28 percent, Shahjalal Islami Bank at 6.65 percent, City Bank at 6.30 percent, Bank Asia at 6.03 percent, BRAC Bank at 5.76 percent, Southeast Bank at 5.36 percent, Dhaka Bank at 5.32 percent, Prime Bank at 5.25 percent and Eastern Bank at 5.18 percent.

The tightest spreads among private banks sit at Mutual Trust Bank PLC (4.10 percent), Islami Bank Bangladesh (4.23 percent) and Pubali Bank (4.70 percent).