MOST newspapers reported, quoting Bangladesh Bank data that the scheduled banks in November 2014 cut rates of interest on their deposit products due to rising excess liquidity in the banking sector amid lower loan disbursement in the industrial sector for dull business. The reports also showed how average interest rates on deposit in the banking sector declined to 7.32 percentage points in November from 7.40 percentage points in October of 2014 (the highest being 8.40 percentage points in January, 2014). However, weighted average interest rate on lending remained unchanged (12.49 percent between November and October of 2014). That is the scheduled banks have denied due interests payment to its depositors keeping their own profit making intact.
Further information from the news reports showed that the interest spread rate, the gap between the interest rates on credit and deposit, increased to 5.17 percentage points in November from 5.09 percentage points in October 2014 and BB officials clarified how it was a bad practice for the banking sector as the interest rate on deposit had decreased against the increased trend in the rate on lending. Old generation bankers offered an explanation for it – quick profits. Even though told not to do so, the banks kept on doing this to increase profit at the expense of both the depositors and the borrowers keeping all under pressure. BB officials further added that the majority of the banks had recently cut their interest rates on deposits as they were now reluctant to collect funds by way of deposits due to a lower credit disbursement amid political unrest uncertainty and the business community has adopted a ‘wait and see’ approach to expand their business by taking loans from the banks due to political uncertainty as well.
Such behaviour of the banks induced by political uncertainty puts an adverse impact on the private sector credit growth. Even though taking more loans from banks is good for the banking community (due to the banks earning more profits owing to charging high interest rates in loans), it discourages the public from saving money and hinders business prospectives because of added costs of funds taken as loans from the banking sources. At the top of all, a fall in the propensity of savings simply creates an imbalance in national average savings rate(s) and GDP ratio which ultimately hampers national productivity per capita. Bangladesh Bank has earlier asked the Scheduled banks not to lower the interest rate(s) on deposits frequently without reasonal grounds. It appears that the banks blatantly ignored BB orders and went on to do whatever they could to earn profits faster. In the short run it seems like a good idea, but in the long run it badly effects the economy. The banks must not disregard what BB said and must be held accountable for their actions. The BB must take stronger steps against such irresponsible banks before it is too late. Fall in over all savings propensity inter alia lendable fund pull will only hinder economic growth in the long run.
