Interest Rate Spread in Bangladesh: An Analytical Review

Lower spread is a vital indicator of the efficiency and competition in the financial system and conducive to higher economic growth of a country via investment spending. In Bangladesh, the spread in the banking sector has been persistently high over the years. The inefficiency originated from the government’s ‘interventionist policies’ of the past and inadequate technical skills in the arena of risk and portfolio management, which caused the high spread in the banking system. If this situation continues indefinitely, private sector investment may be jeopardized. Therefore, lowering of the high banking spread would require substantial improvement in the current situation of limited competition, overstaffing, high administrative costs, the burden of NPLs, and above all, congruence between monetary and fiscal policy stances.