Published in The Daily Observer on Tuesday, 16 August 2016
Banks sitting on idle money now offer less benefit
Bad news for small savers
Shamsul Huda and Abu Sazzad
With a huge amount of money remaining idle in banks because of low demand for credit from prospective entrepreneurs in the private sector, scheduled commercial banks now offer low interest rates on any deposit by small savers, considered the main driver of banking business.
Average deposit rates are continuously falling, which is leading small savers to look for other options for depositing their money. Central bank data show average interest rate on deposit decreased to 5.54 per cent in June this year from 5.67 per cent in May.
Usually, small clients deposit money with banks with an expectation of a good return of the deposit, but the declining interest rates, bank charges and government’s excise duty and some other taxes are dashing their hopes.
Referring to the data in the first eleven months of the immediate past fiscal year, a senior Bangladesh Bank official said banks’ deposit rates reduced by 1.11 percentage points and advance by 1 percentage points.
Bankers say sluggish credit demand, political uncertainties and fragile law and order situation forced the banks to lower both the deposit and lending rates.
Small depositors are now searching for the banks that offer better interest rates amid rush in investing in the BB’s saving certificates, another BB official said.
Anis a Khan, President, Association of Bankers Bangladesh (ABB), said, “Both advance and deposits rates are dropping.”
Meanwhile, traders say they are reluctant to expand their business by paying the existing Equal Monthly Instalment as many could not operate their businesses smoothly.
Banks’ lending rates is still higher than those offered in the neighbouring countries like India, Malaysia and Singapore, said Md. Helal Uddin, an FBCCI Director.
At present, the banking sector is holding over Tk1150 billion idle money or excess liquidity, he said.
Some banks have reduced their rates on advances in recent months, said Ali Reza Iftekhar, Managing Director of Eastern Bank Ltd.
Actually, businesspeople are struggling to run their businesses because of poor infrastructural facilities, the private bank top brass also said.
Mustafizur Rahman, Executive Director of the Center for Policy Dialogue (CPD), said the banking business is in a depressing state due to lower deposit rate in their saving instruments.
At the same time, the government bonds are offering higher rate for the investors to purchase their saving instruments with a view to reducing the budget deficit, Rahman pointed out.
Rahman said private sector credit should be at least 17-18 per cent for achieving the expected level of GDP growth.
“Ensuring stable and secured political environment is highly important to disburse more private sector advance, especially to the industrial sector,” said economist Mamunur Rashid.