Banks on deposit hunt

Scrambles for deposit netting push up interest rates

JUBAIR HASAN
| Published: October 27, 2023 23:31:55

Many commercial banks seem scrambling to collect deposits to avert looming liquidity crunch in the unkempt pre-election period.
As a spillover effect of the deposit hunt, the rates of interest on deposits in the banking industry keep rising fast, reaching 9.50 per cent up till now, bankers said.
Because of the ongoing competition by a good number of banks, the commercial lenders having enough excess liquidity are under immense pressure to retain their individual and institutional investors from going away for the lure of higher gains on their savings, according to the bankers.
Seeking anonymity, a central bank official said the Bangladesh Bank (BB) as part of its inflation-tackling measures took some money-controlling steps like increasing the policy rate by 75 basis points to 7.25 per cent, stopping injections of high-powered money into the economy and curtailing liquidity support to the banks.
“The BB wants to tighten access to credits further to keep the inflation rate below 8.0 per cent by coming December and it started putting pressure on the liquidity in banks,” the BB official said.
He said the interbank call-money rate is another borrowing option for the commercial banks, which also keeps climbing to reach 7.80 per cent now.
“So, the banks have to concentrate more on deposit buildup to avert the possible liquidity crunch, and that’s now happening in the market. That’s why the deposit rate continues growing,” the central banker added.
Managing Director and Chief Executive Officer of BRAC Bank Limited Selim R.F. Hussain says the pressure on the liquidity situation in the banking sector has been growing. So, the issue of deposit buildup becomes extremely important under the current circumstances of the banking operations.
The rates of interest on government securities – treasury bills and treasury bonds – are on an upturn that raised the expectation of the depositors to get more from their investment in banks, he points out.
“The rates of deposits in our bank are still within 8.0 per cent. But, we’re feeling pressure as many banks keep enhancing the rates,” says Mr. Hussain.
The experienced banker also mentions that the repayment process has also slowed down largely because of the prevailing economic slowdown, which worsens the situation further.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman also has noticed the private-sector credit growth in a downward trend and banks very cautious in giving loans to avoid possible election-related instability.
As the rates in treasury bills and bonds continue increasing, banks start investing more in government securities as this is more secure and effective return is higher, which will reduce lending capacity of the banks, he says.
Simultaneously, Mr Rahman added, institutional and individual investors have already started diverting their funds into the government treasury instruments because of higher returns. On the other hand, the banks keep purchasing the US dollar from the BB-administered forex reserves to meet their foreign-currency obligations amid persisting forex dearth.
“So, the liquidity tightness in banks becomes severe. To avert such major liquidity crunch, banks keep raising rates to allure depositors. We also enhanced the rates to 8.75 per cent, which were within 7.50 per cent a month ago,” the professional banker told the FE writer.
A top executive in a private commercial bank, preferring not to be quoted by name, said the stock of excess liquidity in a good number of banks declined remarkably in recent days because of multiple factors while investment turned bad as many borrowers are now facing difficulties in repaying their loans.
Besides, according to him, the commercial banks try to maintain their balance sheet as good as possible in the final quarter of each calendar year.
“And this is the last quarter going. So, banks are desperately trying to do the same with more deposit base now. We recently revised the deposit rates in our bank by 75 basis points to 9.50 per cent,” the bank executive added.
According to BB data, the excess liquidity in the banking sector also dropped to Tk 1.74 trillion in August 2023 from Tk 2.0 trillion recorded in June 2022 while the deposit growth was recorded at 10.18 per cent at the end of August 2023 to reach Tk 16.19 trillion from Tk 14.69 trillion registered a year ago.

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