Customers can no longer expect profits after depositing money to banks. Rather, they are counting losses given the real interest rate compared to the inflation situation in the country.
An analysis of the central bank's "quarterly report on currency and exchange rates" for the July-September period will explain the reckoning. The report was published on Tuesday.
At the end of September this year, the average interest rate on deposits fell to 4.79% while the average point-to-point inflation for the same month was 5.97%, according to the report.
Considering inflation, the real interest rate on deposits stands at negative (-) 1.18%, meaning that if a customer deposits Tk100 in a bank for a certain period, the actual amount will be Tk98.82.
Anis A Khan, former chairman of the Association of Bankers Bangladesh (ABB), told The Business Standard that pensioners are the biggest losers in this situation.
He said he himself is a victim of it.
His income from the savings he made with a bank after retiring from the banking profession has dropped as the interest rate on deposits has declined, he explained.
This former banker called for launching alternative savings instruments for depositors, citing that the reduction in lending rates is a right decision.
The central bank report confirmed, in the third quarter of this year (July-September), interest rates on deposits compared to lending rates fell more than that in the second quarter (April-June).
It has increased the "bank spread" or the difference between lending rates and interest rates on deposits. The average spread at the end of June this year was 2.89, which rose slightly to 3% at the end of September.
Although the bank borrowing rate was fixed at 9%, the average rate at the end of September was 7.79%, thanks to low demand amid the Covid-19 pandemic.
Despite the decline in deposit interest rates, the demand and time deposits have increased by more than 4.5% at the end of September this year as compared to June last.
In this regard, City Bank Managing Director Masrur Arefin told The Business Standard that some large banks have not reduced their interest rates to 9% yet. They are taking deposits at a high interest rate.
Deposits are mostly going to those banks, creating a duality in one country, he opined.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank and former president of ABB, said, due to high growth of remittances and lack of good alternatives, customers are still keeping money in banks considering its security.
Regarding the reduction in the average lending rate, he said the average calculation never reveals the real picture. Many banks have interest rates below 9% while many others have higher rates.
The central bank report stated that the private sector credit growth target was 9.48% at the end of September, compared to the target of 11.5%.