Bangladesh’s banking sector is under increasing strain as the gap between lending and deposit rates — a key indicator of profitability — narrowed to a 17-month low in September, reflecting growing stress across the industry.

Data from the Bangladesh Bank show that the weighted average deposit rate climbed to 6.42 percent in September, while the average lending rate stood at 12.16 percent. The resulting spread of 5.74 percent marks the lowest since April 2024, when it dipped to 5.23 percent.

The squeeze on margins has emerged as banks face rising deposit costs and sluggish lending demand in an economy showing signs of slowdown. Central bank officials and industry leaders say profitability is being further undermined by an increase in non-performing loans (NPLs).

A senior Bangladesh Bank official, who requested anonymity, said some liquidity-strapped banks have been offering higher deposit rates to attract funds, leading to a contraction in the spread.

“The yield on treasury bills and bonds began falling from late August, and the downturn continued into October, so we expect an even lower spread when new data come in,” the official said.

City Bank PLC’s managing director and CEO, Masrur Arefin, said banks had earlier raised deposit rates to invest in government securities when yields were above 12 per cent. “Now that those yields have fallen sharply, the impact is showing up in the reduced spread,” said Mr Arefin, who also heads the Association of Bankers, Bangladesh (ABB).

Mutual Trust Bank PLC’s CEO, Syed Mahbubur Rahman, noted that rising deposit costs, compounded by mounting NPLs, were eroding profits. “Higher non-performing loans increase funding costs and directly hit profitability,” he said.