Rising surplus funds have forced private commercial banks to cut their lending and deposit rates by 1 percentage point, the first in three years, bankers said.
The banks are now charging 15 percent for lending instead of 16 percent a month ago. For deposits, they are offering 11.5-12 percent, which was 12.5-13 percent till May.
They had reduced their interest rates last in 2009 to mitigate the impact of the global recession.
“We are sitting on excess funds and that’s why we are discouraging fixed deposits at the moment,” said Anis A Khan, managing director of Mutual Trust Bank.
The private bank’s excess fund has now reached a two-year high due to a slowdown in the investment demand.
Banks’ loanable funds rose by Tk 23,823 crore to nearly Tk 69,500 crore in the first ten months of the current fiscal year, according to Bangladesh Bank.
The growth of excess liquidity has also brought down the inter-bank call money rate to 7 percent.
“Interest rates are on the decline and if the amount of non-performing loans falls, the interest rates will come down further,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.
Chowdhury said his bank has no pressure for deposits now and accordingly, he has cut the deposit rate by 1 percentage point recently. Pubali is now offering loans at 13.5 percent for “big but good” clients.
The fall in demand for credit is also evident in the banks’ loan-deposit ratio (LDR) and private sector credit growth.
Most of the banks’ LDR hovers between 70 percent and 72 percent, which is significantly lower than the BB’s permissible limit of 85 percent.
The private sector credit growth went down to a 10-year low to 12.72 percent in April.
Amid this situation, the BB last month relaxed its provisioning rules to help the banks get around Tk 500 crore in fresh investable funds.
SA Farooqui, managing director of Standard Bank, also echoed the same on the interest rate trends. “I hope the lending rate will go down further in a few months.”
Non-bank financial institutions that rely on banks for funds also said they are getting loans from banks at lower rates in recent times.
“Our borrowing cost from banks has reduced by 1 percentage point,” said Asad Khan, managing director of Prime Finance.
Source: The Daily Star