• Monday, December 22, 2014

Freedom in the air

Low demand for money pushes interest rates down

Sajjadur Rahman

The ongoing downtrend in investment demand has forced banks to cut interest rates for both deposits and lending, bankers said yesterday.
Some banks are now offering as low as 8.5 percent interest for fixed deposit receipts of different tenures, dropping from 12.5 percent a year ago. The lending rate declined to 13-14 percent now from 15-16 percent a year ago. Premium borrowers are offered less than 13 percent.
“We have further reduced our interest rate on deposits by one percentage point to 9.5 percent from this month as we have surplus funds,” said Ehsan Kashru, managing director of Prime Bank.
The bank is offering 13.5 percent interest for its promising borrowers.
State-run Agrani, Janata and Sonali offer a maximum of 9 percent as interest on deposits as these banks are sitting on huge funds.
Eastern Bank is currently offering the highest of 9 percent on deposits.
The banking industry has been going through a challenging time since the beginning of last year for the elections. Businesses had taken a 'wait-and-see' position and many borrowers were not taking their sanctioned loans. Private sector credit could not exceed 12 percent growth so far this fiscal year, against the central bank's target of 16.5 percent.

Banks were not slashing their lending rates, citing higher costs of funds (deposits). This had seen the interest spread grow, but within the central bank's permissible limit of 5 percent. The spread is the difference between what banks charge borrowers and what they pay depositors for their money. Businesses said banks relied on a wide interest rate spread to grow their profits.
“Falling investment demand has forced us to adjust the interest rates,” said Anis A Khan, managing director of Mutual Trust Bank.
The bank is now charging 12.5-13 percent for loans to promising borrowers, and offering a maximum of 11 percent for fixed deposits, which was 12.5 percent a year ago.
“We'll further slash the deposit rates.”
Helal Ahmed Chowdhury, managing director of Pubali Bank, said demand for money has been declining as many local borrowers are getting low-cost foreign currency loans from foreign sources.
Later, many of these borrowers have adjusted their local currency loans with these foreign currency loans, he added.
“We have to reduce the interest rates for deposits this month.”
Habibur Rahman, deputy managing director of Prime Bank, said banks have no option but to slash the deposit rate to increase income.
“We thought investment demand will pick up after the elections, but it is yet to gain momentum.”

Published: 12:00 am Sunday, March 02, 2014

Last modified: 4:43 am Sunday, March 02, 2014

TAGS: investment deposits and lending interest rate promising borrowers Prime Bank Janata and Sonali bank

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