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Bank time deposits surge under SMART push

JASIM UDDIN HAROON | May 26, 2024 00:00:00

Time deposits in banks increased by Tk 865.9 billion to Tk 14.82 trillion in July-March period of this fiscal year mainly because of rate rise under uncapped interest regime, sources say.

The upturn began in July when the industry introduced a new benchmark called SMART for bank lending. The change gives a push to both deposit and lending rates.

In June 2023, the growth of the FDR or time deposits was in single-digit territory, and since July till March, it had climbed to a double-digit high.

However, demand deposits, mostly in savings accounts, grew a bit slowly at a single-digit rate to Tk 1.94 trillion during the period under review.

The weighted average interest rate on all deposits in the banking industry stood at 5.2 per cent in March while it was 9.2 per cent in the non-bank financial institutions, according to Bangladesh Bank statistics.

In June 2023, the weighted average interest rate on deposits was recorded at 4.4 per cent and non-bank 7.9 per cent.

A senior central bank official told the FE that the time deposits have been on a rise since December as almost all banks raised their interest rates to attract deposits as there had been a liquidity crunch in the wake of economic adversities.

But, he said, the liquidity shortage still hangs over the banking sector, for lending deviations. "This is mainly due to the higher non-performing loans."

Also, the central banker mentioned another drag on liquidity stock, like some unlikely withdrawals from shariah-based banks.

Emranul Huq, CEO and managing director of Dhaka Bank, a leading private commercial bank in Bangladesh, says the rate on FDR has increased and this is the main reason behind the surge in the share of FDR in total deposits.

"Some capital -market investors have deposited in banks by withdrawing wing funds from the share market as the return is very poor there," he says.

There are some investments in government treasuries, too.

On liquidity shortage on the money market, the Dhaka Bank CEO says many small savers are withdrawing funds in the wake of higher inflation in the economy.

Currently, many banks offer more than 10 per cent as interest on term deposits and there are few banks having liquidity shortage offer even around 12 per cent on one-year-tenure deposits, he told the FE correspondent.

Syed Mahbubur Rahman, CEO and managing director of Mutual Trust Bank, another leading commercial bank, notes that there is competition among banks to raise deposits amidst the liquidity death.

He says banks now motivate their clients to switch to term accounts from savings accounts. Savings accounts provide 2.5-percent interest.

"Many savings account -holders have few hundred thousand, and the bank employees motivate them to deposit the amount into FDR," he told The Financial Express about the latest banking trends. And few banks used to discourage deposits in the past but they are now mobilising deposits.

"Banks need cash for investing in the treasury bills and bonds which offer very attractive yields," the banker says about a rush for netting money from members of the public who have the means of saving.

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