Interest rates on bank deposits increase

Siddique Islam | Published: October 04, 2017 00:54:08 | Updated: October 25, 2017 05:44:44


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Interest rates on bank deposits increased further following higher credit growth particularly in private sector, officials said, citing latest disclosure.

The weighted average interest rate on deposits rose to 4.93 per cent in August 2017 from 4.89 percent in July, according to the central bank's statistics released Tuesday.

The rising trend in deposit rates recorded in the last couple of months after the containing of fall since January 2015, when weighted average interest rate on deposits was 7.26 per cent.

"We expect that the upward trend in the interest rate on deposits will continue in the coming months," a senior official of the Bangladesh Bank (BB) told the FE.

Most banks receive deposits offering higher interest rates to increase their deposit growth more than that of credits, the central banker explained.

Currently, bank deposits recorded slower growth than that of credits as depositors feel discouraged from keeping their money with the banks mainly due to rock-bottom interest rates.

The growth rate of deposits, on a year-on-year basis, came down to 10.94 per cent in June 30 last from 13.13 per cent in December 2016 while the growth in credit rose to 15.98 per cent from 15.32 per cent, the BB data showed.

Talking to the FE, Managing Director (MD) and Chief Executive Officer (CEO) of Eastern Bank Limited Ali Reza Iftekhar said the interest rates on lending alongside deposit may also rise gradually in the near future.

"The banks may raise their interest rates on lending to minimize their cost of funds," the senior banker explained.

The weighted average interest rate on lending is likely to reach nearly 10 per cent from the existing level by the end of December this year, he estimated.

In August 2017, the weighted average interest rate on deposits, offered by six state-owned commercial banks (SoCBs), came down to 4.51 per cent from 4.56 per cent a month before.

On the other hand, the average interest rate on deposits at the private commercial banks (PCBs) rose to 5.27 per cent in August last from 5.20 per cent in July 2017 while the foreign commercial banks (FCBs) collected deposits at the interest rate of 1.74 per cent against 1.61 per cent.

The official data showed that nine new PCBs offered higher interest rates on deposits, ranging between 5.98 per cent and 8.78 per cent.

On the other hand, overall spread in the country's banking sector decreased slightly in August as the banks slashed their interest rates on lending more than that of deposits.

The weighted average spread between lending and deposit rates offered by the commercial banks came down to 4.53 per cent in August 2017 from 4.62 per cent in the previous month, the BB data showed.

The spread was 4.80 per cent in August 2016.

The spread being maintained by at least nine banks out of 57 still ranges as high as between more than 5.0 per cent and 8.06 per cent.

Average spread with the SoCBs was 4.07 per cent, PCBs 4.51 per cent, FCBs 6.15 per cent and specialised banks (SBs) 2.70 per cent in August last.

Excluding consumer finance and credit card, the spread of all banks also came down to 4.43 per cent in August 2017 from 4.53 per cent a month before.

siddique.islam@gmail.com

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