More than half a dozen of local banks have been struggling to attract deposits even with high interest rate offers due to a lack of public trust.
Public trust in the banking sector has been eroded, with concerns about the financial instability of certain banks and reports of big loan scandals by some corporate groups which swindled huge funds through shady lending practices.
After the changeover of the government, Bangladesh Bank (BB) dissolved the boards of directors of 14 commercial banks and provided liquidity support to some weak banks so that they can be able to turn around.
But, the government initiative has not worked well. Many banks are offering high interest on deposits to get liquid money, but the response is poor. On the other hand, deposits are flooding into some banks without any publicity, insiders said.
The average interest rate on bank deposits is 6.14 per cent, according to the central bank.
The private sector AB Bank is offering the highest interest rate of 12 per cent against deposits. The bank will pay interest at this rate if you make a Fixed Deposit Receipt (FDR) for less than one year. Even after offering of such a high interest, the bank's deposit growth in January was only 5.75 per cent, lower than the same period of the previous year and deposit growth was negative, available data showed.
The situation is similar for three more commercial banks--Citizens Bank, Community Bank and Exim Bank--which have been offering lucrative interest rates of 11.50 per cent to lure deposits from the clients. Still, these banks are not getting expected deposits, sources said.
According to BB's data, loan interest rates have also increased in line with deposits. Currently, the average interest rate on lending is 11.94 per cent.
Global Islami Bank is charging a 16.35 per cent interest on loans, the highest among all the Bangladeshi banks. Besides, Padma Bank is charging the lowest interest rate of 16.12 per cent among 61 banks. On the other hand, among the Shariah-based banks, Islami Bank Bangladesh Limited is charging the lowest interest rate of 9.83 per cent on its lending while Prime Bank is offering loans at 9.95 per cent.
According to BB's data, deposit growth of most banks was negative at the end of January this year. Even after the loan interest rate crossed 16 per cent, the distribution increased by 38.33 per cent compared to the previous year.
When asked, a senior official of Padma Bank said, "It is true that new deposits are not coming now, but the arrears are being collected. In this situation, we're going slowly in distributing new loans. Now we focused more on the SME financing."
He added, "The interest rate of SME lending is a little higher compared to other loans. Apart from that, the interest rates of all banks have increased due to the BB's increase policy interest rate. We're trying to turn around even in an adverse environment. If we get some financial support from the central bank, the task will be easy for us."
At the end of January, Padma Bank's deposits were Tk 5,543 crore. The amount is 1.1 per cent less compare to that of the previous year, meaning the bank recorded a negative deposit growth. But the bank's loan growth was 38.33 per cent as it was following an aggressive lending practice even with lack of new deposits.
According to another report by BB, the interest rate on Padma Bank's SME loans has increased to 16.23 per cent. The interest rate on loans to large industries is 15.73 per cent, on agricultural loans 10.96 per cent and the overall average interest rate is 16.12 per cent.
When asked, Arif Hossain Khan, Executive Director and Spokesperson of BB's, said, "There are new investment opportunities in the country. So, none can set the interest rate in a market economy. It is not like someone can manipulate the market by distributing loans at high interest rates.
Abdul Awal Mintoo, former president of the FBCCI, said, "As long as political uncertainty and instability persist, there will be no new investment. On the one hand, there is no money for investment and the investment climate is also bleak. Until these two problems are resolved, the chances of a fresh investment boost are very low."
Mustafa K. Mujeri, former Director General of Bangladesh Institute of Development Studies (BIDS) and former Chief Economist of BB, said, "The current growth rate, investment rate - everything is leading to a situation that is not pleasant. The environment is not conducive for investment in the private sector. The environment is unfavorable for their production growth. Since the interest rate is high, that can also act as a reason for reducing investment."
