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Banks cut deposit rates as loan demand wanes

Sauadur Rahman
Most banks have cut interest rates on deposits responding to low demand for loans.
Industry analysts found that interest rates on deposits have gone down to as low as 7 percent this month from 11-12 percent a year ago. But most banks are still offering between 8 percent and 9.5 percent rates for deposits of different terms.
"There is hardly any business, so demand for credit is very low. We are discouraging deposit collections," said an officer of Dutch-Bangla Bank’s branch in Motijheel.
Dutch-Bangla slashed interest rates on deposits by over 2 percentage points in one year, and currently offers only 7 percent interest for deposits of 3- to 12-month tenures.
Mercantile Bank reduced the rates by 50 basis points this month and now offers only 8.75 percent for deposits of three months to one year. Rates go up slightly for bulk deposits.
The banks appear to be in a race to reduce deposit rates in the wake of piling funds. Excess liquidity in the banking sector reached a record high ofTk 120,000 crore, as of March, according to Bangladesh Bank.
Treasury officials at different banks are flummoxed on how to handle their money as demand for credit has been waning for over a year.
"We will further slash our deposit rates as we have huge surplus money,” said Shafiqul Alam, managing director of Jamuna Bank that offers a 9.5 percent rate for three-month-tenure deposit.
Alam linked the reason of rate cuts to poor demand for money from businesses.
Private sector credit growth was just 11.39 percent against a target of 16.5 percent, as of May.
The call money rate, at which banks borrow to meet short-term needs, rose to only 6.5 percent during the recent past Eid-ul-Fitr when people were on a spending spree.
Pubali Bank gives 9.25 percent rates for deposits of 3 month, but it is mulling to further down the rates.
Helal Ahmed Chowdhury, managing director of the bank, hinted that his bank would cut the rates further this month.
Even, the nine new banks that were believed to be in a struggle to collect deposits have also slashed their rates.
"We offer only a 9 percent interest rate for fixed deposits of three months because of availability of money in the market," said Mukhlesur Rahman, managing director of NRB Bank Bangladesh.
Though the rate cut is disadvantageous for depositors, it is a boon for the businesses who can borrow from the banking sector at lower costs, bankers said.
"Declining deposit rates are a good sign for the economy as it will drive down the lending rates," Rahman said.
Lending rates have already been reduced to 12-13 percent now from over 15 percent a year ago, according to bankers.
"But lending rates must be cut down further if we want to help the country expand its industrial activities and make it vibrant," said Chowdhury of Pubali Bank.