We are deeply concerned to find that, due to excess liquidity in the banking sector, savers and some small borrowers are being penalised to ensure hefty dividends for shareholders. This is a result of interest rates on deposits being slashed at a faster pace than interest rates on loans, leading to a widening gap between lending rates and deposit rates (average spread).
According to a report in this daily, the weighted average rate on deposits dropped to 4.13 percent in June 2021. The June inflation rate of 5.64 percent means depositors actually received negative returns on their savings. At the same time, the lending rate in June was 7.33 percent, leading to a highly undesirable average spread of 3.20 percent. Experts have warned that not only does this deprive depositors of getting returns on their funds, it also goes against banks’ main agenda and shifts their focus to profit-making instead.
At a time when the Covid-19 pandemic has had massive repercussions on incomes and pushed a substantial chunk of the population into poverty—2.45 crore people, according to data released by PPRC and BIGD in April 2021—it is distressing that banks would adopt such a strategy. We have written extensively on how unemployment, redundancy and reduced incomes have forced many to dip into their savings to survive the pandemic. But we now find that our banking regime is set up so that savings are discouraged, so what are people supposed to fall back on? The fact that banks in Bangladesh posted a hefty operating profit in the first half of 2021 despite the pandemic-induced economic slowdown, while during this same period, ordinary people struggled to make ends meet, only makes this situation more objectionable.
Alongside savers, small borrowers have also been adversely affected by this banking strategy, since they have little bargaining power to secure loans at a lower rate than larger ones. Yet, it is these same borrowers who have suffered the most during the pandemic and are most in need of help. A report in The Daily Star from October last year detailed how banks were given the responsibility to distribute more than Tk 80,000 crore from the government stimulus packages in the form of soft loans. From these, the packages dedicated to corporate groups were most successfully disbursed, yet the funds allocated for the SME and farm sectors saw sluggish implementation due to the reluctance of lenders.
Experts have suggested that the central bank should take actions to mop up a portion of the excess liquidity, boost the private sector’s appetite for credit and ensure a stable stock market where individual investors can benefit. We hope the authorities will listen to these suggestions and implement monetary policy that benefits all sections of society and not just the privileged few. However, the most urgent need of the day is to get the pandemic situation under control and rein in widespread transmission through a comprehensive vaccination programme in order to restore business confidence and get the economy back on track.