A good number of banks have already lowered the interest rates on fresh deposits by keeping their lending rates unchanged.
The downward revision of the deposit rates comes much ahead of the date---April 01 next--- suggested by finance minister AHM Mustafa Kamal during his meeting with the chairmen and managing directors of the private commercial banks on December 30 last.
Banks that have gone for one-sided cut in interest rates said the revision was a part of their 'preparation' ahead of the execution of the single-digit interest rate--- 6.0 per cent on deposits and 9.0 per cent on lending barring credit cards.
Explaining, a number of chief executive officers of banks said the clients of existing time deposits would continue to enjoy the old rates despite lowering of the deposit rates from April 01 next. But the banks would suffer loss if they continue to offer old rates to new depositors.
Nearly 20 private commercial banks (PCBs) out of 41 have already cut their interest rates on deposits by around 2.0 percentage points that have already come into effect from January 2020.
The banks are now trying to keep their spread at a 'rational level' for minimising the impact on the single-digit interest rate on their profitability, according to the senior bankers.
The private banks are expected to start re-fixing their interest rates on lending in line with the Bangladesh Bank's (BB) upcoming circular in this regard, they explained.
The central bank is expected to issue a relevant directive at an appropriate time, asking all the scheduled banks to bring down their interest rates on both lending and deposit to single-digit from the existing level.
The bankers had expressed their fear that deposits in the banking sector might decline in the near future mainly due to unattractive interest rates.
Besides, liquidity pressure on the market is likely to intensify in the coming months on the same grounds, they explained.
The banks, particularly PCBs, are now offering varying rates of interest on fixed deposits, particularly for three-month, six-month and one-year periods , ranging from 5.50 per cent to 10 per cent. It was 3.50-11.50 per cent earlier.
The banks offered interest rates on savings accounts ranging between zero per cent and 4.50 per cent against 1.00-6.60 per cent a month back.
"Deposit growth in the country's banking sector may fall in the coming months if the downward trend in interest rates on deposits continues," Syed Mahbubur Rahman, Managing Director and Chief Executive Officer (CEO) of Mutual Trust Bank Limited, told the FE while explaining the possible impact on lower deposit rates.
He also said the inflow of remittance is likely to face an adverse impact if the remitters consider the rising trend in inflationary pressure on the economy and the depreciation of local currency against the US dollar continues.
"However, we'll see the actual scenario in due course of time," Mr Rahman, a former chairman of the Association of Bankers, Bangladesh (ABB), added.
In some cases, real interest rates on deposits are now in the negative territory after adjusting the same with the rate of inflation.
Inflation as measured by the consumer price index (CPI) increased to 5.59 per cent in December 2019 from 5.56 per cent of the previous month on 12-month average basis, according to the Bangladesh Bureau of Statistics (BBS) data.
"Investment in fixed assets like land, flat and precious metals including gold may go up in the near future mainly due to lower interests on term-deposit," Mehmood Husain, Managing Director and Chief Executive Officer (CEO) of NRB Bank Limited, told the FE.
The senior banker also said lower deposit growth is likely to push up the ongoing liquidity pressure on the country's money market if the central bank does not use its monetary instruments properly.
"Besides, the falling trend in interest rates on deposits may affect the saving habit of the people, prompting them to spend more on consumption," Mr Husain noted.
Currently, the banks lend out to large and medium industries at interest rates ranging from 6.0 per cent to 17 per cent and to small industries between 8.0 per cent and 20 per cent.
The bank's lending rates on working capital to large and medium-scale industries vary between 6.75 per cent and 17 per cent, according to the central bank's latest report on scheduled banks' interest rates for December 2019.
The interest rates on working capital for small industries range between 8.00 per cent and 18.00 per cent and trade financing loans between 6.75 per cent and 16 per cent.
Interest rates on housing loans hover between 7.00 per cent and 16 per cent and consumer credits between 7.99 per cent and 20.50 per cent, said the BB in its monitoring report.
However, the interest rate spread in the country's banking sector remained unchanged in November, as the commercial banks increased their interest rates on both lending and deposit in the same proportion.
The weighted average spread between lending and deposit rates, offered by the banks, remained unchanged at 3.92 per cent in November 2019 from the previous month, according to the BB's latest statistics.
The weighted average rate on deposits rose to 5.71 per cent in November from 5.66 per cent a month before, while interest rates on lending stood at 9.63 per cent from 9.58 per cent.
