Banks cut deposit rates, set to bring down lending rates
Monday, 27 April 2009
Siddique Islam
Seventeen banks have slashed interest rates on deposits and three have cut lending rates, as they moved to comply with central bank order to trim down cost of fund for key sectors, officials said Sunday.
The move would boost the country's private sector lending which has fallen in the recent months and it comes a week after the Bangladesh Bank directed the banks to reduce lending rates to a maximum 13 per cent.
A central bank official said so far 17 banks have announced cutting of deposit rates while three have brought down lending rates since they issued the directive on April 19.
"We hope all 48 banks in the country would comply with the order in time. We will get a full picture next month when the banks will submit reports on their lending and deposit rates," a BB senior official told the FE.
A chief executive officer of a leading commercial bank said the private banks have drastically chopped off interest rates on deposit rates so that they can trim down the lending rates to their clients.
"For the time being it would affect mobilisation of deposits in the banking system. But already the banks are saddled with too much liquidity. The reduction in deposit rates would divert some funds to share markets or government securities," he said.
More banks would cut deposit rates next month to minimise their cost of funds, he added. "All PCBs have in principle agreed to reduce the deposit rates to a maximum 10 per cent from the existing 13.50 per cent."
Officials said most of the PCBs have issued internal order slashing deposit rates but lessening of the lending rates would depend on economic prospects of specific sectors and track record and financial ability of the clients.
The banks' move follows an unprecedented order from the central bank directing all commercial banks to fix lending rates for five key growth areas at 13 per cent.
The BB defended the order saying that some banks have been stubbornly keeping their interest rates too high, resulting in a decline in private sector lending at a time when the country is facing the fallout of the global economic recession.
The BB said the banks must not charge more than the fixed interest rate for agriculture, term loan to large and medium-scale industries, working capital to large and medium-scale industries, housing, and trade financing.
"Slashing interest rates on deposit will spur investment of fresh funds in different sectors and help offset the impact of ongoing global economic recession," the BB senior official said.
The country's commercial banks now offer interest rates ranging from 5.25 to 13.50 per cent on fixed deposit schemes, while the rates for saving accounts varies between 2.50 per cent and 8.00 per cent, according to the central bank statistics.
Currently, the banks provide loans to large and medium scale industries at interest rates ranging between 11 per cent and 15 per cent and to small industries between 10 per cent and 16.50 per cent.
Interest rates on housing loans range between 11.50 per cent and 16.00 per cent and consumer credits 10.50 per cent and 19.50 per cent.
The banks lending rates on working capital to large and medium scale industries vary between 10.50 per cent and 16.00 per cent and for small industries between 10.50 per cent and 16.30 per cent, the BB data showed.
Seventeen banks have slashed interest rates on deposits and three have cut lending rates, as they moved to comply with central bank order to trim down cost of fund for key sectors, officials said Sunday.
The move would boost the country's private sector lending which has fallen in the recent months and it comes a week after the Bangladesh Bank directed the banks to reduce lending rates to a maximum 13 per cent.
A central bank official said so far 17 banks have announced cutting of deposit rates while three have brought down lending rates since they issued the directive on April 19.
"We hope all 48 banks in the country would comply with the order in time. We will get a full picture next month when the banks will submit reports on their lending and deposit rates," a BB senior official told the FE.
A chief executive officer of a leading commercial bank said the private banks have drastically chopped off interest rates on deposit rates so that they can trim down the lending rates to their clients.
"For the time being it would affect mobilisation of deposits in the banking system. But already the banks are saddled with too much liquidity. The reduction in deposit rates would divert some funds to share markets or government securities," he said.
More banks would cut deposit rates next month to minimise their cost of funds, he added. "All PCBs have in principle agreed to reduce the deposit rates to a maximum 10 per cent from the existing 13.50 per cent."
Officials said most of the PCBs have issued internal order slashing deposit rates but lessening of the lending rates would depend on economic prospects of specific sectors and track record and financial ability of the clients.
The banks' move follows an unprecedented order from the central bank directing all commercial banks to fix lending rates for five key growth areas at 13 per cent.
The BB defended the order saying that some banks have been stubbornly keeping their interest rates too high, resulting in a decline in private sector lending at a time when the country is facing the fallout of the global economic recession.
The BB said the banks must not charge more than the fixed interest rate for agriculture, term loan to large and medium-scale industries, working capital to large and medium-scale industries, housing, and trade financing.
"Slashing interest rates on deposit will spur investment of fresh funds in different sectors and help offset the impact of ongoing global economic recession," the BB senior official said.
The country's commercial banks now offer interest rates ranging from 5.25 to 13.50 per cent on fixed deposit schemes, while the rates for saving accounts varies between 2.50 per cent and 8.00 per cent, according to the central bank statistics.
Currently, the banks provide loans to large and medium scale industries at interest rates ranging between 11 per cent and 15 per cent and to small industries between 10 per cent and 16.50 per cent.
Interest rates on housing loans range between 11.50 per cent and 16.00 per cent and consumer credits 10.50 per cent and 19.50 per cent.
The banks lending rates on working capital to large and medium scale industries vary between 10.50 per cent and 16.00 per cent and for small industries between 10.50 per cent and 16.30 per cent, the BB data showed.