Ziaur Rahman
Growth rate of banks' deposits marked a significant decline during the first four months of current fiscal year (FY) 2014-15 over the corresponding period of last fiscal.
According to statistics from the central bank, the average growth rate of overall bank deposits dropped to 2.26 per cent during the July-October period of current fiscal from 5.40 per cent during the same period in last fiscal. The deposit growth in last fiscal (2013-14) was 16.38 per cent.
Bankers and experts attributed the reasons to slashing of interest rate on deposits and slowdown in trade and business activities amid the prevailing political turmoil. Fresh investment in banks has also started declining in recent days as political impasses caused almost stagnancy to the economy.
The banks deposited a total of Tk 141.20 billion during the July-October period this fiscal as against Tk 289.23 billion during the same period in last fiscal, shows Bangladesh Bank's latest monthly statistics.
Of the total deposit, the time deposit experienced the drastic fall of almost 40 percent during the period. According to the statistics, the growth rate of time deposit declined to 3.53 percent from 6.82 percent during the same period in last fiscal. Demand deposit, which was already in red zone, has also declined further to -8.63 per cent from -6.76 per cent.
Noted economist and Executive Director of Policy Research Institute (PRI) Dr Ahsan H Mansur listed two reasons for the decline in growth rates of bank deposits. "The cut in interest rate on bank deposits discourages people to invest in banks, while the lucrative return on investment in savings instruments attracts people, said the PRI executive director.
The country's commercial banks lowered the interest rate on deposits substantially in the last one year to match their earnings with expenditures. The interest rate on deposits, particularly fixed ones, dropped around 3.0 percentage points in September last compared to the corresponding period of the previous year, according to the bankers.
The deposits cover tenure between three months and 12 months and are prime sources of the fixed deposits which have contributed around 90 per cent of total bank time deposits.
The interest rate on fixed deposits came down to around 8.0-9.0 per cent in September last from 11-12 per cent a year ago.
Some of the bankers feared that a significant portion of bank deposit may shift to different areas including risky ones if the declining trend of interest rate on deposits continues. A small amount of bank deposit has already been shifted to the national savings certificates because of higher yield on the government instruments, they explained.
After slashing of the interest rate on deposits, most of the banks cannot achieve the optimum level of their profitability due mainly to rising trend of the non-performing loans (NPL), they observed.
If the situation continues, former Bangladesh Bank governor Dr. Salehuddin Ahmed apprehended that banks might lose their investment capability in the long run. He stressed the need for increasing banks' efficiency by reducing their operational costs rather than slashing down the interest rates drastically. "Banks can increase their financial strength and capability by reducing the default loans, inefficiencies and operational costs," he added.
The country's economy is now facing a catastrophe because of political violence, accompanied by non-stop blockade and frequent hartal calls. Most of the business activities have been facing serious setback, especially the export sectors have been shattered.
Production and supply chains are affected greatly.
"Banks are also not gearing up efforts to mobilise fresh deposits due to reduction in credit demand," hinted sources in banking sector. "Most of the investors have adopted the wait-and-see approach resulting in the decline in bank deposits," said an official of Bangladesh Bank. But the government should be aware about the issue otherwise, he said, banks may face some difficulties once normalcy returns
mzrbd@yahoo.com
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