A paltry 19 out of 60 banks offered in excess of 5 per cent interest against their deposit products in May 2021 as the majority of them, except the scam-hit banks, are holding enough liquidity in their hands in the absence of credit demand from both private and public sectors, based on the data from Bangladesh Bank.
With the poor demand for credit and excess liquidity in the banks, the weighted average deposit rates of the remaining 41 banks declined below 5 per cent, which took the deposit rate below the inflation of 5.26 per cent in May 2021.
Due to this, making deposits in those sorts of banks would result in the devaluation of depositors’ money, which will, in turn, discourage depositors to keep money with the banks and prompting them to search for different investment scopes such as national savings certificates.
The 18 banks’ weighted average lending rate decreased below 7 per cent in May 2021, due to banks trying desperately to bring in customers with a very poor credit demand from the businesses.
From the 60 banks, the other 42 banks were charging interest rates ranging between 7 to 9 per cent except for First Security Islami Bank as its weighted average lending rate stood at 9.18 per cent in May 2021.
With the big decline in deposit and lending rates in the last year, 27 banks have managed to keep their interest rate spread within 3 per cent while the spread of 33 banks was maintaining interest rate spread above 3 per cent.
With the declining deposit rates, the overall interest rate spread of the banks excluding the interest rates of credit cards has increased substantially to 3.21 percentage points in May 2021 from 2.99 percentage points in April 2021.
Before the outbreak of the coronavirus outbreak, the nation entered into the low-interest rate regime in April 2020 when the government enforced a 9 per cent ceiling on lending rate.
The outbreak of coronavirus and the subsequent economic fallout and the credit demand fall has resulted in a further decline in deposit rates even below the 9 per cent ceiling.
A number of banks were now lending at even a 6 per cent interest rate.
The liquidity in the banking sector, in addition to the lending rate ceiling and the coronavirus-induced economic fallout, has increased to a record high in the Bangladesh Bank has so far injected a big amount of liquidity in the banking system by putting in place a stimulus package against the purchase of dollars from the local market.
Due to this, excess liquidity in the nation’s banking system increased to Tk 1,98,115.64 crore in March 2021 from Tk 64,249.1 crore in March 2020.
Despite the Bangladesh Bank supplying enough liquidity to make money available for economic recovery, the credit growth of the private sector is still a long way away from the central bank’s target with the achievement of only 8.29 per cent in April 2021 against the projection of 14.8 per cent growth for FY21.
The latest BB data showed that the weighted average deposit rate BASIC Bank, Bangladesh Development Bank, Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Probashi Kollyan Bank, Standard Chartered Bank, AB Bank, National Bank, Mercantile Bank, EXIM Bank, Bangladesh Commerce Bank, First Security Islami Bank, South Bangla Agriculture and Commerce Bank, and Meghna Bank were above 5 per cent.
Besides, Padma Bank, Union Bank, NRB Bank, Global Islami Bank, Modhumoti Bank and Community Bank Bangladesh were the other banks that were providing above 5 per cent interest rate against deposits.