Banks start slashing deposit rates

January, 2020

Banks start slashing deposit rates

Banks say that lowering interest on deposits ahead of April 1 is necessary to smoothly implement single digit interest rates

Many banks have already lowered the interest paid on fresh deposits ahead of the schedule.

Bankers said the preparatory one-sided cut in interest rates is necessary for executing the single digit rates — 6.0 per cent on deposits and 9.0 per cent on lending — from April 1 next.

Shahjalal Islami Bank revised their deposit interest to 6 percent from the first day of this year. Padma Bank followed suit by also lowering interest to 6 percent from January 1.

It also notified government and semi-government offices about it. In response, a number of their clients have decided to withdraw their deposits.

Terming the enforcement of single digit rates challenging, Padma Bank Managing Director Ehsan Khasru said this will put them in a big liquidity crisis.

In the meantime, South Bangla Agriculture and Commerce Bank has started asking their clients who have high interest fixed deposits to withdraw them.

“Currently we are offering 7 percent as the highest interest on deposits. It will be possible to slash it to 6 percent from April 1,” Rahel Ahmed, managing director of Prime Bank, told The Business Standard.

However, a number of banks are still offering more than 9 percent interest on deposits. Fearing the tendency to start unfair competition, banks have decided to revise the deposit interest rate unanimously to 6 percent from February next.

The chief executives of banks took the decision on Tuesday night.

Dr Mohammed Haider Ali Miah, chairman of the Bangladesh Association of Banks and also the managing director of Exim Bank, said that interest rates need to be revised downward prior to lower lending rates. That is why they took the decision unanimously.

He said, banks themselves will fix their respective deposit interest rates for long-term schemes. “But the interest rate should not be revised in a way which can hurt the enforcement of 9 percent interest on lending.”

A decision had been taken earlier to cap the interest rate on industrial loans only, and banks were preparing to enforce it from January 1. Later, Finance Minister AHM Mustafa Kamal ordered banks to enforce the single digit interest rates from April 1 in all sectors.

Kamal said that he had talked to the prime minister about it.

“We wanted to implement the single digit interest rate from January 1. But Prime Minister Sheikh Hasina wants it for all loans, so we decided it should be implemented from April,” Kamal told the press after a meeting with bank directors and chief executives last December.

The finance ministry has also made it mandatory for state-owned companies to keep up to 50 percent of their surplus funds in private banks and non-bank financial institutions.

For state-owned companies, the interest on deposits in private banks was set at 6 percent, while it was set at 5.5 percent for deposits in state-owned banks.

Shams Mahmud, president of the Dhaka Chamber of Commerce & Industry, said it is not enough to consider just the benefit for banks, businessmen’s interest should be considered as well.