Interest spread narrowed down in January as banks raised deposit rates while lending rates dropped slightly, bankers have said.

The weighted average spread between lending and deposit rates, offered by scheduled banks, fell to 3.12 percent from 3.19 percent in December, revealed the central bank's latest statistics.

"Maintaining the spread will be a challenge for the country's banking industry because rising trends of both non-performing loans and cost of deposits," Mutual Trust Bank managing director and CEO Syed Mahbubur Rahman said on Monday while replying to a query.

The weighted average interest rate on lending fell to 7.13 percent in January 2022 from 7.18 percent in the previous month while such rate on deposits rose to 4.01 percent from 3.99 percent earlier.

Lower yield on advances along with an uptrend in interest rates on deposit pushed down the spread in January than in December, senior bankers explained.

"The existing upward trend of interest rates on deposit may continue in the coming months if selling of the US dollar by the central bank continues," senior executive of a leading private commercial bank predicted.

The banker also said there was no scope to lower interest rates on deposits following the Bangladesh Bank (BB)'s directive.

The regulator instructed all the scheduled banks to fix interest rates on term deposits with maturity of three months and above at rates not less than the rate of inflation published three months before.

On the other hand, interest rates on lending may rise slightly in near future following a rebounding demand for credit, particularly from the private sector, in recent months, according to the private banker.

Meanwhile, average spread with state-owned commercial banks was 2.35 percent in January, 3.19 percent with private commercial banks, 5.25 percent with foreign commercial banks and 1.82 percent with specialised banks.

In April 2020, the spread dropped significantly to 2.92 percent from 4.07 percent in March following the implementation of the single-digit interest rate in the banking sector.

Earlier, the BB directed banks to fix a maximum 9.0-percent interest rate on all loans except credit cards as part of a government initiative to bring down the rate to single digit from 01 April 2020.