Banks warned against higher deposit rates



The central bank has warned 17 commercial banks against offering higher interest rates on deposits, saying the practice would fuel an unhealthy competition and distort the monetary system.
The Bangladesh Bank sent letters to these banks — two foreign and the rest local private banks — on Monday, a central bank official said.
A BB survey found that 50 percent of the total branches of eight banks offered higher deposit rate than the ceiling, the official said.
Though the BB has not set such a ceiling, the Association of Bankers Bangladesh Ltd, which is a platform of banks’ chief executives, put the limit at 12.5 percent through an informal understanding between banks.
But the survey found that some banks were collecting deposits by offering rates higher than 12.50 percent.
The banks also reported to the BB in February that they had offered 12.50 percent or below.
The main purpose of the survey was to collect data on the extent of this misreporting of deposit interest rates, as accurate data is essential for effective financial and monetary policy.
Members of a BB team collected the data directly from different bank branches in Dhaka and outside in the guise of potential depositors or customers, the official said.
Information on offered interest rate to customers was collected for different time like one month, three months and one year and more, as well as amount of deposit less than Tk 10 lakh, Tk 50 lakh and above.
Data were collected over telephone during last week of January and first two weeks of February from 340 bank branches of four state banks, 30 private banks and seven
foreign banks.
Bank-wise data show that at least one or more branches of the 17 banks are offering more than 12.5 percent (13-14 percent) interest rate for deposits.
“In eight banks, 50 percent or more of the sampled branches are offering more than the reported 12.5 percent interest rate,” the survey report said.
Branch level data indicate that about 16 percent branches (54 branches) offered more than 12.5 percent interest rate for deposit of Tk 50 lakh and above for one year and more maturity period.
About 62 percent branches offered equal to 12.5 percent, and about 22 percent branches offered less than 12.5 percent, the survey found.
However, the deposit rates of some banks went down in line with a decline in their costs of funds, leading to scope to bring down their lending rates as well.
But the banks did not lower their lending rates. The spread (the difference between a bank’s deposit and lending rates) of five banks was above 9 percent in January, according to BB data. (Source)

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