Home ›› 10 Aug 2021 ›› Front
Bankers say they need more time to raise the interest rate on deposits as per the regulator’s directives amid sluggish economic activities and private investment during the coronavirus pandemic.
The Association of Bankers, Bangladesh (ABB) will discuss the issue with the Bangladesh Bank on Wednesday during a regular meeting.
AAB Chairman Ali Reza Iftekhar said the central bank issued the instruction without consulting them.
It is not acceptable to raise the interest rate on deposits in line with the inflation rate while the highest lending rate is 9 per cent, said Iftekhar, the managing director of Eastern bank.
“We are going to discuss the issue with the Bangladesh Bank governor on August 11 to review the directive,” Iftekhar told The Business Post.
Mutual Trust Bank’s Managing Director Syed Mahbubur Rahman said the time was not right to issue such a directive. The deposit rate will increase in the upcoming days if economic activities resume in full swing.
He said that banks would face various challenges if the deposit rate increased as the lending rate is fixed at 9 per cent.
Surplus liquidity in the banking sector stood at Tk 2,31,462 crore as of June, up 66 per cent year-on-year, Bangladesh Bank data show.
Although there is surplus liquidity in the banking sector, not every bank has equal liquidity, said Rahman, noting that those banks would face challenges.
Former AAB chairman Syed Mahbubur Rahman said there would be no more competition in the deposit market because of the BB directive.
As the deposit rate is the same, everyone will be encouraged to deposit with a well-rated bank. On the other hand, small and weak banks will face more problems, he explained.
On Sunday, Bangladesh Bank asked banks not to set interest rates on fixed-term deposits below the inflation rate.
According to BB and the Bangladesh Bureau of Statistics data, the weighted average interest rate on deposits stood at 4.13 per cent in June, while the average inflation rate was 5.56 per cent.
The BB notice said interest rates on deposits in the banking sector had been steadily declining. It said most banks offer interest or profit on term deposits at a lower rate than the inflation rate.
“This reduces the purchasing power of small depositors who are dependent on the interest or profit of the deposits held in the bank. As a result, they are suffering,” the central bank said.
Now, most banks offer 2 to 4 per cent interest on fixed deposit receipts (FDRs), which result in a negative real interest rate of 2 to 3 per cent for depositors.
