Banks are making a major push to attract more deposits from the individuals facing tight liquidity impairing business.
Their quest for mobilizing fresh liquid funds is also pushing up interest rates against lending and deposits, insiders said.
The average interest rate against designated deposits has already edged up from 1.0 percent to 2.0 percent sending the lending rates to double digit again.
“This is bizarre to me as banks are inviting me for deposit,” a senior government official told The New Nation yesterday, on condition of anonymity.
He said, “Officials of a fourth generation bank invited me to put money at their bank offering 7.0 to 7.5 percent interests on term deposits. They insisted me for deposit saying they were under pressure to mobilise funds from individual depositors.”
Insiders said the rate of term deposit is now ranging between 5.5 and 6.0 percent from 4.0 and 4.5 percent last year.
Some banks are even offering higher rates than the above mention rates for hunting deposit aggressively.
They said state-owned commercial banks moved forward in this competition among the banks at the beginning of the New Year and later most private commercial banks joined with the ‘interest race’ to attract more individual deposits.
“Most of the banks have already increased rates of interest on their deposits and lending to cope up with the tight liquidity situation,” senior banker and ex-chairman of Association of Bankers Bangladesh Nurul Amin told The New Nation yesterday.
The lending rates is now hovering between 10 and 12 per cent from last year’s 8.0 and 9.0 percent. Nurul Amin said the rates on short-term deposits have already gone up and it may climb further amid liquidity crisis in banks. The situation created from high credit growth against a sluggish deposit growth. “The situation will not improve unless retail deposits is pick up drastically,” he opined.
The central bank reported an overall credit growth of 19.6 percent in November last year, while deposits have only grown by 10.57 per cent in October.
A senior commercial bank official told The New Nation that mobilising funds was a headache for local banks amid liquidity crisis. It pushed them in an interest rate race and it is likely to pull deposits from a bank to another like a “vicious circle”.
.”All banks have to hike interest rates for deposit in fear that their customers will shift deposits to a competitor,” he said. Two weeks ago, the central bank has slashed advance- to-deposit (ADR) ratio for commercial banks by 1.5 per cent fixing it at 83.5 percent for conventional banks from 85 per cent, while 89 percent for Shariah-compliant Islamic banks from 90 percent for conventional banks with a view to curbing excessive lending.
“Banks have engaged themselves in a unhealthy competition to mobilise deposits creating a fresh unrest in the banking sector,” former Bangladesh Bank Governor Dr Salehuddin Ahmed told The New Nation.
He said local banks are offering deposit rates around 5-6 percent, which is roughly 1.5 to 2 percent higher than November last year. As a result, banks also lifted lending rates climbing to double digit again since 2015.
When asked, Dr Salehuddin Ahmed said, “Despite rate hike, banks may not be able to park up bulk deposits from the individuals when people are putting their money in saving tools for a higher return than bank deposits.”
Presently, the rates of return on the five-year family savings certificates is 11.52 percent, five-year pensioner savings schemes 11.76 percent, three-year post office savings certificates 11.28 percent, Bangladesh Savings Certificates 11.28 percent, three-year profit-based savings certificates 11.04 percent and five-year wage earners development bond is 12 percent. Referring to media reports, Dr Salehuddin Ahmed said, sales of saving certificates get big boost from July- December last year taking advantage of low interest rates on banks’ fixed deposits.
The Directorate of National Savings sold saving certificates worth Tk 39,168 crore from July to December last year, which is 65 per cent of the annual target, show an official figure. “People flocked to buy saving certificates expecting high returns pushing up their sales. In this context, deposits will simply move around from bank to bank while market interest rate go up further,” said Dr Salehuddin Ahmed.
