Banks cutting interest rates on poor demand for money

Businesses seeking loans cash in on the situation

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Poor demand for money has been pushing banks to slash interest rates every month, Bangladesh Bank data shows.

The sluggish demand is also reflected in the call money rate, at which short term funds are borrowed and lent in the money market.

The scheduled banks’ weighted average interest rates on loans dropped to 11.57 percent in July from 12.32 percent in January.

On deposits, the rate fell to 6.78 percent from 7.26 percent in January.

The rates are falling continuously due to weak demand for cash, said Shafiqul Alam, managing director of Jamuna Bank.

The interest rate for long-term loans has come down to about 11 percent in recent days and the pressure is still on.

The economy has been witnessing a downtrend since 2013, when opposition political parties had engaged in violent politics ahead of national elections.

When economic activities were coming back on track in the second half of last year, a new wave of turmoil emerged, eating up the first quarter of 2015.

“Genuine businessmen who want loans are cashing in on the market situation,” a managing director of another bank said, wishing not to be named.

He said his bank had agreed to lend at 10.5 percent to a big corporate house but another bank grabbed the customer offering only 10 percent.

There is a window open for banks to invest their money in government treasury bills and bonds that yield 8.4-10.5 percent interest. These rates are lower than in the market, but the banks are happy as investments of idle funds in government instruments bring them some returns, he said.

Low demand for funds is creating surplus liquidity in the market.

For example, the banks’ average loan-deposit ratio stood at 69 percent in August, meaning that Tk 16 remains unutilised for every Tk 100 deposit. BB rules allow a bank to lend Tk 85 off its Tk 100 deposit.

BB data shows weighted average rate in the call money market was only 5.47 percent on Wednesday and total turnover stood at Tk 5,584 crore, down from Tk 5,809 crore a week ago.

The call money rate, which hovers around the 8-10 percent mark, reached the highest of 180 percent in December 2010.

Source: The Daily Star

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