High deposit growth at interest rates higher than that of market average has caused a huge loss for state-owned banks, raising concern for the Bangladesh Bank.
In a meeting with top officials of state-owned banks held on Monday, the central bank asked them to rationalise deposit growth in line with asset growth to reduce losses.
Bangladesh Bank Governor Fazle Kabir presided over the MoU review meeting.
According to Bangladesh Bank data, deposit growth of four state-owned banks, such as Sonali, Janata, Agrani and Rupali, ranged between 20% and 50% in the last one and half years – from January 2020 to June 2021.
When deposit growth was unusually high, loan growth of all four banks was 6%-7%, far below from the credit ceiling of 12%-20% set by the Bangladesh Bank in the MoU (Memorandum of Understanding) signed with the banks.
The high deposit growth has led to a rise in interest expenses for banks. As a result, net interest income turned negative, causing the banks to suffer huge losses.
The interest income of four banks was negative Tk1,400 crore as of June this year, according to Bangladesh Bank data.
The interest loss of Sonali Bank stood at Tk621 crore in June when deposit growth was 20% over the last one and half years.
The deposit of Sonali Bank stood at Tk1.39 lakh crore at the end of June this year.
Agrani bank experienced the highest deposit growth of 51% in the last one and half years when the bank's interest loss stood at Tk503 crore in June this year.
The bank's total deposit crossed Tk1 lakh crore for the first time in June.
Janata and Rupali both saw deposit growth of above 30% during the same period when their interest losses were Tk30 crore and Tk202 crore respectively.
All four banks collected fixed deposits at above 5%-6% during the pandemic crisis when industry average deposit rate was 3% to 4%.
In the meeting, the Bangladesh Bank asked the state-owned banks to be efficient in liability management and to be rational in collecting deposits, said a senior executive of the central bank who attended the meeting.
High deposits have contributed to the pile up of excess liquidity in four banks, the central bank data shows.
The total excess liquidity of four banks stood at Tk1 lakh crore at the end of June, which was 42% of total excess liquidity of the banking industry.
Sonali bank holds the highest Tk54,600 crore in excess liquidity as of June, according to Bangladesh Bank data.