The removal of the 9% cap on bank lending rates has widened the gap between lending and deposit rates in Bangladesh, making loans significantly more expensive and slowing private investment. In some banks, the spread between lending and deposit rates now exceeds 8%-10%.
According to Bangladesh Bank data, the average deposit rate in November 2025 was 6.36%, while the average lending rate was 12.14%, yielding an average spread of 5.78%. Eight banks reported spreads above 8%-10%, and another 14 banks reported spreads between 6%-8%. By comparison, the average spread in November 2023, when the cap was lifted, was only 3.35%.
Economists say that despite interest rate liberalisation, a lack of competition and risk-averse behavior by banks has pushed spreads to unusually high levels, restricting the flow of credit to productive sectors.
Dr Zahid Hussain, former Lead Economist at the World Bank’s Dhaka office, told Daily Sun, “When deposit rates fall but lending rates do not, it indicates a malfunctioning market. High spreads discourage investment and hinder economic recovery. Banks prefer safe returns from treasury bills and bonds rather than lending to industry and commerce.”
He warned that unless non-performing loans are reduced, banks may continue raising lending rates to compensate for risk, increasing pressure on consumers and investors.
Dr AB Mirza Azizul Islam, former adviser to the Caretaker Government, emphasized the need for central bank oversight. “Market-based interest rates do not mean a lack of regulation. Transparency must improve and weak banks need timely support, otherwise stronger banks will exploit the situation. Prolonged spreads above 6%-7% will hurt SMEs, employment, and industrial output,” he said.
The issue was discussed at a bankers’ meeting at Bangladesh Bank on December 7. A central bank executive noted that, while rates are now market-based, banks have widened spreads excessively, raising loan costs and hurting businesses. Neighboring countries maintain lending-deposit gaps below 3%, whereas Bangladesh has long averaged around 6%. Bangladesh Bank Governor Dr Ahsan H Mansur called the situation “worrying” and urged collective action to reduce spreads.
The rise in spreads is partly due to depositor shifts toward stronger banks, which attract deposits at lower rates while weak private credit demand prevents proportional declines in lending rates. Banks also earn over 10% risk-free returns from treasury bills and bonds, further discouraging lending to industry.
High borrowing costs have dampened entrepreneurs’ investment appetite, causing many industrial firms to shelve expansion plans. Rising loan costs have also reduced import letters of credit (LCs), affecting production and supply chains.
Bangladesh Bank data shows that in the first five months of FY26 (July–November), LC openings for capital machinery rose 32.22% but settlements fell 16.77% year-on-year. LC openings for intermediate goods rose 1.95%, while settlements declined 16.41%. LC openings and settlements for raw materials increased marginally by 0.45%.
Private sector credit growth has remained below 7% for six consecutive months, falling to 6.58% at the end of November 2025, below the central bank’s target.
Anwar-ul Alam Chowdhury (Parvez), President of the Bangladesh Chamber of Industries, said, “Banks have lowered deposit rates but not lending rates, inflating spreads. Borrowing at 14%-16% for production is unrealistic. It raises costs, weakens competitiveness, and hurts domestic industries.”
From April 2020 to June 2023, a 9% lending cap was in place. Following IMF guidance, the “Six-Month Moving Average Rate of Treasury Bill (SMART)” was introduced in July 2023, lifting the 4% cap on spreads in November. Full interest rate liberalisation followed on May 8, 2024, alongside a crawling peg that raised the dollar rate by Tk7.
Bd-pratidin English/ Jisan
