Dhaka, Bangladesh (BBN)- Bangladesh’s commercial banks decreased the interest rate on deposits substantially in the last one year to match their earnings with expenditures.
The interest rate on deposits, particularly fixed ones, dropped around 3.0 percentage points in September last compared to the corresponding period of the previous year, according to the bankers.
The deposits cover tenure between three months and 12 months and are prime sources of the fixed deposits which have contributed around 90 per cent of total bank time deposits.
The interest rate on fixed deposits came down to around 8.0-9.0 per cent in September last from 11-12 per cent a year ago.
The senior bankers feared that a significant portion of bank deposit may shift into different areas including risky ones if the declining trend of interest rate on deposits continues.
A small amount of bank deposit has already been shifted into the national savings certificates because of higher yield on the government instruments, they explained.
After slashing of the interest rate on deposits, most of the banks cannot achieve the optimum level of their profitability due mainly to rising trend of the non-performing loans (NPL), they observed.
“The bankers are compelled to reduce the interest rate on deposits for minimising our cost of funds,” a senior executive of a leading private commercial bank (PCB) told BBN in Dhaka.
He also said the interest rate on deposits may fall further in the coming months due to the squeezing of investment opportunities in the wake of political uncertainty.
On the other hand, the weighted average spread between lending and deposit rates offered by the commercial banks rose to 5.10 per cent in September 2014 from 5.01 per cent in the corresponding period of the last calendar year as the interest rate on deposit decreased more than that of lending.
The central bank earlier asked the commercial banks to keep interest rate spread at less than 5.0 per cent, barring operations relating to credit cards and small and medium enterprises (SMEs).
“We’re now trying to bring down the interest rate spread below 5.0 per cent to facilitate the country’s business activities,” a senior official of the Bangladesh Bank (BB) told BBN.
During the period, the weighted average rate on overall deposits dropped to 7.48 per cent from 8.50 per cent while the average interest rate on lending came down to 12.58 per cent from 13.51 per cent, the BB data showed.
The central bank earlier asked the commercial banks to keep interest rate spread at less than 5.0 per cent, barring operations relating to credit cards and small and medium enterprises (SMEs).
The central banker also said outstanding deposit balance and credit are increasing continuously in terms of volume but the deposit growth is comparatively high than that of credit.
All banks’ deposit balance excluding inter-bank rose to BDT 6760.24 billion as of September 18 last from BDT 5924.82 billion as of September 26, 2013 while outstanding loan excluding inter-bank stood at BDT 4932.66 billion from BDT 4426.22 billion.
BBN/SSR/AD-02Nov14-1:08 pm (BST)