Bank deposits rise despite falling interest rates

Bank deposits maintained a robust 13 percent growth year-on-year in December, despite declining interest rates.

Bankers and analysts attributed the deposit growth to a lack of popularity of alternative investment tools available in the market. The ease of converting deposits to cash and its safety also encourages people to park their money in the banking system, they added.

“People living in the rural areas are not aware about other investment tools, including government saving certificates. So, they keep their money with the banks,” said Biru Paksha Paul, former chief economist of the central bank.

Moreover, a part of remittance that flows through non-banking channels also reaches the rural people and is saved as deposits, and the interest income is not their concern, he added.

Total deposits stood at Tk 908,864 crore at the end of December 2016, up from Tk 803,511 crore in the same month of 2015, according to data from Bangladesh Bank.

The weighted average interest rate on deposits came down to 5.22 percent in December from 6.34 percent in the same month a year ago.

Among the local banks, 12 are offering an interest rate on deposits of less than 5 percent, while inflation stood at 5.52 percent as of December last year.

These banks are Agrani, Islami, the City, IFIC, UCB, Pubali, Uttara, Eastern, Prime, Dutch-Bangla, Trust, Brac and ICB Islamic Bank.

Dutch-Bangla is giving the lowest rate of 2.69 percent on deposits.

Among the nine foreign banks, eight are offering less than 5 percent on deposits, according to the central bank data.

Huge excess liquidity is responsible for pushing the deposit rate down. The banking sector has idle money worth Tk 4,000 crore, according to the latest statement by the central bank, but the amount of excess liquidity is above Tk 1 lakh crore, most of which is invested in treasury bills and bonds.

“People don't understand the bond or capital markets. So, they keep their money with the banks,” said Shafiqul Alam, managing director of Jamuna Bank.

Shocks in the stockmarket also erode the confidence of people, he added.

While banks offer 5 percent or less on deposits, government savings schemes give around 11.5 percent and bonds 6 percent to 8 percent, depending on the tenure.

The main advantage of keeping money with the banks is safety, said Mohammed Nurul Amin, managing director of Meghna Bank.

Moreover, money remains more liquid and depositors can withdraw according to their wish. Depositors are also granted loans against their time deposits. But if money is invested in savings instruments or bonds, investors will not get any return if money is withdrawn before one year, he added.

The capital market is an alternative to investing money but most people still believe the market is speculative, he said. The deposit rate should not decline further, considering the inflation rate, he said.

Private commercial banks experienced substantial growth in deposits of 12.84 percent in December 2016, compared to 5.93 percent in the same period of 2015, despite sliding interest rates.

The average interest rate of private banks came down to 5.42 percent in December last year, which was 6.51 percent in the same period of 2015.

Deposits at the state banks grew 12.84 percent year-on-year in December.

The average deposit rate of state commercial banks fell to 5.13 percent in December from 6.38 percent in the same month of the previous year.