IN recent years depositors in Bangladesh are very much hesitant to keep money in Banks due to low interest rates in real terms or negative returns on their savings. It appears that the declining inflation rates are not protecting the depositors, which has brought about a mess in the banking sector. A news report on Wednesday said that most of the banks now offer 5-5.75 percent interest against fixed deposits of one-year tenure. In other words, if a depositor keeps Tk 100,000 at a bank for one year, he will get a maximum of Tk 5,750 as interest earnings on the deposit. And after deducting tax at 15 percent, the amount comes down to Tk 4,887.5, meaning the net interest income stands at only 4.88 percent. That is the prevailing interest rate on deposit is rather a damping factor for inducing domestic saving urgently needed for home-grown capital formulation.
Interest rate is largely influenced by the central bank’s monetary policy, but in an economy like that of Bangladesh, it is the outcome of many other factors including that of demand for investment fund and the amount of non-performing loans. So a boost in investment, in this regard, may help increase the interest rates of depositors. But question is that the environment is not conducive to investment in the country and it also hampers the creation of multifarious sectors where investors could invest easily. The reason behind this spiky environment is political instability, deterioration of law and order situation, high cost of raw materials and insufficient infrastructural supports etc. In fact, due to lack of business friendly environment, there is no growing change in economy. It also leads people to invest out of the country and some people even reserve money in home keeping it as idle money.
It is highly frustrating that the depositors’ returns are lower than the inflation rate, meaning their money has lost value in real terms. The average inflation rate in the past one year -from May 2015 to May 2016 – was 5.97 percent. The situation has hit the common people hard as on the one hand their cost of living is increasing and on the other hand their savings do not yield enough income.
Bankers blamed the squeezing return on deposits on the low demand for loans that has ultimately been fuelling the banks’ excess liquidity. In this situation, Banks cannot raise the deposit rates unless there is a pickup in credit off-take. Otherwise, the banks’ profitability would be under further pressure. Experts say that government has taken abundant money from banks with low interests for spending in mega projects. Banks, in this case, are trying to make-up these financial shortages by lowering the interest rate of deposits.
In our view, government should mitigate the crisis as it is the real crisis-maker. The government should try to create a friendly business environment so that entrepreneurs are encouraged to invest. As infrastructural development is the precondition of both high investment and economic growth, government should heed to it. Depositors cannot take the burden created by the government into their shoulders.
