Deposits pile up as demand for credit goes down

July 16, 2013 | Filed under: Economy | Posted by: bdchronicle

Savers affected as banks cut interest rates on deposit

Banks deposit growth has surpassed credit growth by 9 percentage points, which may take a toll on their profits and affect the savers. The amount of deposit grew by 17.74 percent on June 13, while credit rose by 9.41 percent, compared to last year, according to central bank statistics. Bank officials said, due to a huge gap between deposit and credit, profit of most banks marked a fall in the first half this year. Banks are giving interest to their depositors but cannot invest the deposited money, the officials said. As a result, their cost of fund is going up, they added. The banks have already started cutting the interest rates on deposits to rein in the cost of fund, the officials said. An official of NCC Bank said they have instructed their branches to lower the rate of interest on deposit. Several other banks have taken the same initiative, he added. Managing Director of Pubali Bank Helal Ahmed Chowdhury said if the situation continues to prevail, their profitability may be hampered. He also admitted banks are lowering interest rates on their deposits. If the banks cannot invest the deposited money, their efforts to cut the lending rates will turn futile, Chowdhury said. However, he said, As the country is heading towards the national election, investment will bounce back as soon as the political situation improves. An official of Agrani Bank said many banks raised deposits by offering attractive interest rates. In recent times, many banks offered much higher interest rates, sometimes 14 percent to 14.5 percent, which contributed to the rise in deposits. Due to the sluggish stockmarket and lower interest rates on various savings instruments, people prefer to save money with banks, officials said. Many banks have also opened Islamic banking wings which helped raise their deposits. Islami Banks deposit growth was 14.26 percent, while the deposit in the commercial banks Islamic banking wings rose as high as 376 percent, according to Bangladesh Bank statistics. The banks cannot give loans keeping pace with the rise in deposits due to a dull investment climate and the banks cautious stance in the wake of various scams and political unrest. As a result, banks excess liquidity reached around Tk 72,000 crore at the end of May.

Credit in state-owned banks grew by 7.20 percent on average, while such growth was below 6 percent in some banks. Many of the private banks saw a credit growth at 1 percent to 5 percent. In two private banks, credit growth was negative. Credit in three top ranking foreign banks fell by 4 percent to 14 percent on June 13, compared to the same day a year ago. Source:The Daily Star

Surplus funds push banks to cut rates

June 14, 2013 | Filed under: Economy | Posted by: bdchronicle

Rising surplus funds have forced private commercial banks to cut their lending and deposit rates by 1 percentage point, the first in three years, bankers said. The banks are now charging 15 percent for lending instead of 16 percent a month ago. For deposits, they are offering 11.5-12 percent, which was 12.5-13 percent till May. They had reduced their interest rates last in 2009 to mitigate the impact of the global recession. We are sitting on excess funds and thats why we are discouraging fixed deposits at the moment, said Anis A Khan, managing director of Mutual Trust Bank. The private banks excess fund has now reached a two-year high due to a slowdown in the investment demand. Banks loanable funds rose by Tk 23,823 crore to nearly Tk 69,500 crore in the first ten months of the current fiscal year, according to Bangladesh Bank. The growth of excess liquidity has also brought down the inter-bank call money rate to 7 percent. Interest rates are on the decline and if the amount of non-performing loans falls, the interest rates will come down further, said Helal Ahmed Chowdhury, managing director of Pubali Bank. Chowdhury said his bank has no pressure for deposits now and accordingly, he has cut the deposit rate by 1 percentage point recently. Pubali is now offering loans at 13.5 percent for big but good clients. The fall in demand for credit is also evident in the banks loan-deposit ratio (LDR) and private sector credit growth. Most of the banks LDR hovers between 70 percent and 72 percent, which is significantly lower than the BBs permissible limit of 85 percent. The private sector credit growth went down to a 10-year low to 12.72 percent in April. Amid this situation, the BB last month relaxed its provisioning rules to help the banks get around Tk 500 crore in fresh investable funds. SA Farooqui, managing director of Standard Bank, also echoed the same on the interest rate trends.

I hope the lending rate will go down further in a few months. Non-bank financial institutions that rely on banks for funds also said they are getting loans from banks at lower rates in recent times. Our borrowing cost from banks has reduced by 1 percentage point, said Asad Khan, managing director of Prime Finance. Source: The Daily Star

Appetite for loans ebbs

June 18, 2013 | Filed under: Economy | Posted by: bdchronicle

Excess funds swell 52pc in banks in 10 months; lending rate slightly declines

Excess liquidity in the banks is still high as investors are still disinterested in taking bank loans even though the interest rate dropped. Banks excess liquidity swelled by 52 percent between July and April this fiscal year to Tk 69,499 crore, according to data from Bangladesh Bank. Businessmen often cite the high rate of interest as a reason for not taking loans but in recent times, the rate has gradually been decreasing by the month. The average lending rate in April was 13.64 percent, which was 13.77 percent in July. The lending rate decreased by 0.13 percentage points on average in the last 10 months. But the private sector credit growth has been decreasing every month and was 12.68 percent in April, which was 18.22 percent a year ago. In January, Bangladesh Bank kept enough provision in its monetary policy so that private sector credit growth may expand further by June. But investors are not eager about borrowing funds. As a result, excess liquidity swelled. Zahid Hussain, lead economist of The World Bank, said there is no demand for loans and credit growth has fallen because of uncertainty in the investment climate. Zahid described the situation as a mood of hesitancy. Investors are pursuing a wait-and-see policy to know what happens in the political arena in the next seven to eight months, he said. He said investors are taking a cautious policy as shutdowns have greatly hampered the economy too. With the recent scam in the banking sector, bankers are also following a cautious policy in granting loans. The economist said the central bank has tightened monitoring that may have decreased credit growth.

A mid-level official of United Commercial Bank Ltd said bankers are shaky about giving loans after the HallMark scam and Anti-corruption Commission drive. Bank management becomes suspicious when a branch sends a loan proposal, the official said. An official of Agrani Bank said even though credit activity will remain sluggish for now, activity is expected to pick up when a new government will take office, as the confidence level among investors may increase. However, a slight increase in investment is visible, according to the central banks letters of credit settlement statistics. Imports of capital machinery and raw materials fell in the first 10 months of the current fiscal year. LC opening in the same period increased slightly, which indicates that investment may pick up in future.

Remittances soar to record high

July 3, 2013 | Filed under: Economy | Posted by: bdchronicle

Workers remit $14.46b from abroad in the year to June 30

The country received a record $14.46 billion of remittance in the just concluded fiscal year, the central bank said yesterday. Of the amount, two-thirds came from Middle Eastern countries alone. The figure 12.59 percent higher than in fiscal 2011-12 has been credited to the efficiency of banks and the central banks policy steps. Beneficiaries can now get their remittances in just 10 minutes. This efficiency is encouraging the expatriates to send more and more money back home, said Mahfuzur Rahman, executive director of Bangladesh Bank. The central bank has organised several awareness campaigns overseas to discourage remitters from sending their money through illegal channels. It has also encouraged commercial banks to open exchange houses overseas to facilitate the process, Rahman added. And, commercial banks say the move is paying off. Banks were able to net the untapped remitters, SM Aminur Rahman, managing director and chief executive officer of Janata Bank, said. The bank has transmitted around $1 billion of remittances in fiscal 2012-13. To tap in more expatriates, Janata has applied to the central bank for permission to appoint agents in Italy, he said.

The importance of remittance to the economy is progressively increasing, as it swells the countrys foreign currency reserve and strengthens the current account balance. Furthermore, it helps the beneficiaries score higher in the social and economic indicators like education, nutrition, living condition, housing, health care, poverty reduction, social security and investment. In June, migrant workers sent home $1.06 billion from overseas, compared with $1.07 billion in the same month a year ago, according to data from Bangladesh Bank. Between July and February of fiscal 2012-13, some 3.73 lakh Bangladeshis have gone abroad for employment, according to Bangladesh Economic Review. Source: The Daily Star