Banks cut rates on deposits as demand for credit runs low

Poor demand for big loans and a slum in economic activities are severely affecting the country’s banking sector. Most investors are now more risk sensitive and on waiting to make before big investment decisions. 
But banks are taking the brunt of the dull investment outlook as they are sitting on huge idle fund. Consequently most banks have already cut interest rates on deposits responding to low demand for loans. 
It keeps their interest liability at the low. Industry analysts found that interest rates on deposits have already gone down to as low as 7 percent this month from 11-12 percent a year ago. 
However some banks are still offering between 8 percent and 9.5 percent rates for deposits of different terms. “There is hardly any business, so demand for credit is very low. We are discouraging deposit collections,” said a report quoting an officer of Dutch-Bangla Bank’s Motijheel branch.
Dutch-Bangla slashed interest rates on deposits by over 2 percentage points in one year and currently offers only 7 percent interest for deposits of 3- to 12-month period. Mercantile Bank has reduced it by 50 basis points this month and now offers only 8.75 percent on deposits on three months to one year period. Rates go up slightly for bulk deposits.
Banks appear to be in a race to reduce deposit rates in the wake of spill over of funds in their vaults. Excess liquidity in the banking sector reached a record high of Tk 120,000 crore, as of March, according to Bangladesh Bank.
Treasury officials at different banks are flummoxed on how to handle their money as demand for credit has been waning for over a year. “We will further slash rates on deposits as we have huge surplus money sitting idle,” news report said quoting Shafiqul Alam, Managing Director of Jamuna Bank as saying. The bank offers 9.5 percent rate for three-month period, he said. 
Alam linked the reason of rate cuts to poor demand for credit from businesses.
Private sector credit growth was just 11.39 percent against a target of 16.5 percent as of May.
The call money rate, at which banks borrow to meet short-term needs, rose to only 6.5 percent during the just concluded Eid festival showing there was no extra demand for fund at consumers level. 
Pubali Bank gives 9.25 percent rates on deposits for 3 month, but it is mulling to further down the rates. Its Managing Director Helal Ahmed Chowdhury hinted about further cut on deposit rates this month.
Even, the nine new banks that were believed to be in a struggle to collect deposits have also slashed their rates. “We offer only 9 percent interest rate on fixed deposits of three months because of availability of money in the market,” Managing Director of NRB Bank Mukhlesur Rahman said.
Though the rate cut is disadvantageous to lure more deposits, it is a boon for the businesses who can borrow from the banking sector at lower costs, bankers said.
“Declining deposit rates are a good sign for the economy as it will drive down the lending rates,” Rahman said.
Lending rates have already been reduced to 12-13 percent from over 15 percent a year ago, according to bankers.
But it must be further down if we want to help the country expand its industrial activities, bankers said.

Source: weekly holiday