Deposit interest highest in decade, while growth lowest in 10 months
Most banks offered up to 12% interest on deposits in April, the highest in a decade. Despite higher interest rates, deposit growth slowed to 8.63%, the lowest in the last ten months, according to central bank sources.
Bankers said, when the interest rate of deposits in banks is increasing while the growth of deposits is decreasing, it is a matter of great concern. Many banks are not able to return the deposit money. Apart from this, depositors kept less money in banks due to fear of inflation and merger issues.
According to Bangladesh Bank data, at the end of April this year, the amount of deposits in banks stood at Tk16.75 lakh crore, registering 8.63% year-on-year growth.
The growth is lower than that of the previous months. The deposit growth was around 10% and 10.5% in March and February, respectively.
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The rate at which deposit growth is decelerating in April this year was preceded by the lowest deposit growth in June 2023, when the rate was only 8.40%.
By reviewing the website of Bangladesh Bank, it can be seen that in 2014, several banks have given interest rates of 13-14% to depositors. Although the interest rates on deposits have fluctuated since then, most banks have offered interest in the range of 10-11%.
However, one or two distressed banks had a different picture of interest rates.
Md Arfan Ali, former managing director of Bank Asia, told The Business Standard, the loan interest rate has been increasing in the last few months due to which banks are also offering higher deposit rates, but the growth of deposits is much lower than before.
He cites several reasons behind this, saying inflation is not under control in the last two and a half years. Inflation is still around 10%. Due to which people are keeping money in hand instead of depositing in banks.
He said, the rate of deposits in banks has increased to the extent that it has happened in the 90s. Also, deposit rates were higher during 2003-2020. Around 2014, most banks gave loans at 15-18% interest after receiving deposits at around 13% interest.
The managing director of a private bank told TBS that the deposit interest rate is increasing while the growth is decreasing, which means that there is a crisis of confidence among bank customers.
The merger issue has created panic among customers of many banks. Apart from this, due to the news that many banks are not able to pay back their depositors, there is a crisis of confidence among customers.
He said, "Banks in liquidity crisis are collecting deposits even at 15% interest. Still, they are not getting enough deposits."
As an example, he pointed out that several banks are offering double deposit returns in five years.
Managing directors and treasury department officials at several banks said they are currently collecting deposits at 12% interest. However, the interest rate on lending remains below 15%.
At least two private sector banks are now receiving deposits with the promise of doubling their money back in five-and-a-half years, according to a review of data from several banks.
Apart from this, fixed deposit account can be opened for one year in various banks. There is also the facility of getting monthly profit. It can be seen that some banks are offering 11-12.50% interest rate on one year deposits.
Apart from this, many Sharia-based banks which are currently facing liquidity crisis are also offering to return double the deposit in five and a half years.
Currently, National Bank is offering an attractive interest rate on a deposit scheme of only 100 days called "Century Deposit Scheme". The bank is offering up to 80% loan facility on the deposit amount of Tk50,000 and above.
Currency outside banks increased by Tk3,154cr in a month
According to data from the Bangladesh Bank, at the end of April, the amount of money outside banks – known as mattress money – stood at Tk2.64 lakh crore. In the space of one month, money in the hands of people has increased to Tk3154 crore.
Besides, the report says that the amount of money outside the banking system has increased in the last seven months. Last October 2023, it was Tk2.45 lakh crore.
A managing director of a state-owned bank said many banks had reduced deposit interest rates to 3-4% during Covid. Still, people kept money in banks.
"Now many customers withdraw their deposits from banks and invest elsewhere. Now some banks are collecting money at high interest but are not getting much response from depositors. One of the major reasons for this is that some banks have created a lack of confidence in the banking sector," he added.
