Interest rates on bank deposits decline but lending rates static

FE Team | Published: October 26, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
The country's banking sector experienced a declining trend in interest rates on deposits during the current month while the lending rates on banks credits remained almost unchanged.
At least eight commercial banks have slashed their deposit rates while three banks raised their deposit rates in the current month, official sources said.
The commercial banks have already cut their deposit rates by 0.25 per cent and 1.00 per cent apparently to discourage deposits as the banks have excess funds (liquidity).
The real effective interest rate represents the difference between the actual interest rate received on deposits (excluding tax payment) and the rate of inflation. If the rate of inflation exceeds that of interest than there is a negative real effective rate of interest.
In August this year, the inflation was recorded at 10.12 percent on point to point basis while the average interest rate on bank deposits was 6.85 per cent per annum.
Concerned circles said, negative effective rate of interest under the given situation may act as a disincentive to savers keeping their funds with banks.
The banks have reduced their deposit rates for particular tenures, such as three months', six months' and one year fixed deposit schemes.
"The declining trend in interest rates on deposits may continue in the near future due to excess liquidity in the banking system," a senior official of a private commercial bank told the FE Thursday.
Excess liquidity with all scheduled banks stood at Tk 142.84 billion by the end July last against Tk 142.79 billion at the end of June 2007.
According to analysts, the situation about excess liquidity in banks is unlikely to improve in the near future unless the economic situation particularly investment activities shows an uptrend.
The overall economic situation in the aftermath of floods remains depressed due to both economic and non-economic factors, according to them.
Even cuts in lending rates will not be much helpful for the economic activities to pick up without inflation being contained and non-economic deterrents, removed, the analysts said.
However, the bankers are of the view that there is no justification to pay higher interest to the depositors as fund is available in the country's money market at 6.50-7.00 per cent.
The banks are now offering variable rates of interest on fixed deposit schemes ranging between 5.50 per cent and 13.00 per cent, according to the central bank statistics.
Besides, some banks offered their interest rates on savings deposit accounts ranging between 2.50 per cent and 8.00 per cent to attract more funds from the general depositors.
On the other hand, only one commercial bank out of 48 raised their interest rates on lending slightly with effect from early this month to keep pace with their cost of funds.
"The interest rates on lending have almost remained the same in this month," a senior official of the Bangladesh Bank (BB) told the FE, adding that the central bank is closely watching the interest rates situation.
The banks have fixed their lending rates on working capital between 10.50 per cent 16 per cent while export credit is offered at seven per cent, the BB's data showed.
The banks, however, offered their rates ranging between 11 per cent and 16 per cent for large and medium scale industries while interest rates on small industries were charging between 10 per cent and 18.50 per cent.
The banks also fixed their lending rates on housing loans between 10 per cent and 16.50 per cent while they offered consumer credits at 10.50 per cent and 19.60 per cent rate of interest.