4:42 pm - Sunday January 18, 7260

Banks slash deposit rates further    

Further cut in interest rates on bank deposits with lending rates remaining unchanged widened the spread in November last.

Senior bankers dropped an idea that the interest rates on deposits might fall further in the coming months if the ongoing political uncertainty continued.

bbThe weighted average rates on deposits came down to 7.32 per cent in November last from 7.40 per cent in the previous month while interest rates on lending remained unchanged at 12.49 per cent, according to the central bank statistics, reports the Financial Express (FE).

“We want to reduce our cost of fund through slashing expenditure on deposits,” Nurul Amin, Chief Executive Officer and (CEO) and Managing Director (MD) of Meghna Bank Limited, told the FE Wednesday.

Explaining the situation, he said the banks are compelled to minimise their cost of funds because they are reeling from excess liquidity pressure in recent months.

“The interests rate on deposits will go up only after improvement of the country’s overall investment situation,” Mr Amin, also former chairman of the Association of Bankers, Bangladesh (ABB), said.

The deposits that cover tenures between three months and 12 months are prime sources of fixed deposits which have contributed around 90 per cent to total bank deposits.

The interest rate on fixed deposits came down to around 8.0 per cent in November from 11per cent a year ago, a senior official of a leading private commercial bank (PCB) said.

He said most of banks now offer lower interest rates on lending only for priority customers, who now prefer foreign-currency loan from overseas sources due mainly to lower interest rates.

“We expect that the interest rates on lending may fall in the coming months if the competition among the banks is going on,” he explained.

Talking to the FE, a senior official of the Bangladesh Bank (BB) said the excess liquidity with the banks started declining recently because of creating credit demand in various sectors, including trade and commerce.

The overall excess liquidity with the commercial banks came down to around Tk 1.09 trillion as of the second week of November last from Tk 1.32 trillion as of the first week of September 2014, according to the BB official.

He said major portion of the funds has been invested in the risk-free government securities. “The excess liquidity with the banks may rise in the coming months if the political turmoil continues.”

Excess reserves, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 32 billion.

On the other hand, the weighted average spread between lending and deposit rates offered by the commercial banks rose to 5.17 per cent in November 2014 from 5.09 per cent in the previous month as the interest rates on deposits decreased more than that of lending.

The spread being maintained by at least 30 commercial banks out of 56 still ranges between more than 5.0 and 10.56.

Average spread of the four government-owned commercial banks (SoCBs) is 3.59 per cent, PCBs 5.45 per cent, foreign commercial banks (FCBs) 8.11 per cent and specialised banks (SBs) 3.34 per cent.

Earlier on January 22, 2012, the BB asked the commercial banks to keep spread between the interest rates at less than 5.0 per cent, save operations relating to credit cards and small and medium enterprises (SMEs).

Country’s business community earlier urged the central bank governor to take initiative to lower the lending rates to facilitate business activities, particularly to help augment industrialisation in the country.