Banks' deposit base expands slightly
Banks' aggressive drive for funds has finally pushed up the deposit growth, easing the cash crunch that has crippled the banking sector in recent months.
Yet, the growth in loans, which was nearly 17 percent in June this year, is still significantly higher than the deposit growth, creating a likelihood for asset-liability mismatch.
The average deposit growth in the industry stood at 11.29 percent in June, in contrast to 10.62 percent in December last year, according to data from the Bangladesh Bank.
At the end of June, deposits in the banking sector totalled Tk 10,59,669 crore.
Since June last year, the deposit growth ranged between 10 percent and 10.6 percent as banks were reluctant to take deposits amid huge excess liquidity. But aggressive lending and loan scams by some banks sparked a liquidity crisis in the sector at the turn of the year.
To counter the situation, banks started to offer interest rates upwards of 10 percent to depositors, which, in turn, pushed up the interest rate on lending to past 13 percent.
On June 20, the Bangladesh Association of Banks, a platform of directors of the private banks, announced to cut the interest rate on deposits to 6 percent and lending to 9 percent from July 1.
The move was to stop unhealthy competition to collect deposits and bring down the borrowing rate.
The deposit growth improved as banks are aggressively collecting deposits to bring down the loan-deposit ratio in line with new authorised limit of 83.5 percent, said Syed Mahbubur Rahman, chairman of the Association of Bankers Bangladesh (ABB), a forum of chief executives of the private banks.
Though the ABB had set the deposit rate at 6 percent, some banks are offering more than 8 percent, said Rahman, also the managing director of Dhaka Bank.
“Funds are now available in the banking system and there is no deposit crisis,” said MA Halim Chowdhury, managing director of Pubali Bank.
Pubali Bank has brought down the interest rate on lending gradually, with most of the loans now being given at 9 percent.
State banks mostly contributed to higher deposit growth in June as they still enjoy a certain level of confidence among the general public.
The deposit growth of the state banks stood at 8.50 percent in June, up from 6.46 percent in December last year.
Private banks' deposit growth was 12.73 percent in June, in contrast to 12.58 percent six months earlier.
“The public still prefers state-run banks for parking their money and the interest rate is not a major factor to them,” said Mohammad Shams-Ul Islam, managing director of Agrani Bank.
The state-owned banks are giving 6 percent interest rate for deposits in line with the ABB's decision, he said.
On the other hand, the new banks are offering 8 to 9 percent interest rate against deposits.
For instance, the deposit rate of scam-hit Farmers Bank was 9.62 percent in July, the highest amongst all banks. Despite offering the highest rate, the bank's deposit growth was negative 15 percent in June.
The average deposit rate of NRB Global Bank was 9.41 percent as of July, the second highest. Its deposit growth was 26.28 percent in the same month, according to central bank data.
