The financial services regulator must take steps to break up a banking syndicate and prevent a disaster in the monetary system of Bangladesh, a former central bank governor warned on Monday.
Mohammad Farashuddin said the banks have formed themselves into a syndicate through which they cut deposit rates but maintain a steady interest spread, which is the profit margin - effectively the difference between the lending and deposit rates.
“Only proper banking supervision can ensure that people are not prey to a monopoly,” Farashuddin said.
According to data published on the Bangladesh Bank website, the weighted average interest rate for all banks has almost halved in the last three years, from the 8.11% on offer in April 2014 to the 4.97% available in April 2017.
And in March, the weighted average deposit rate of 5.01% coupled with the (12-month average) inflation figure of 5.39% indicated a negative real interest rate of 0.38%.
Such low or negative returns discourages depositors from putting their money in the bank out of fear that high inflation will cause them to lose money in real terms.
“It does not make much sense to keep money in the bank amid negative real interest rate,” said economist Dr AK Enamul Haque, director at Economic Research Group. “(But) people are perhaps keeping money in the bank in absence of an alternative.”
Low rates drive depositors to savings certificates
Depositors are running towards national savings certificates to enjoy a double-digit interest rate while many others delve into the stock market, said several bankers.
Total national saving certificates outstanding stands at Tk180,916cr in April, up 37% in the past 10 months of the fiscal year 2017, according to Bangladesh Bank data.
“It is very difficult to attract depositors despite offering deposit rates higher than inflation on some products,” said Shahanaz Sultana, senior principal officer at AB Bank.
Analysts suggest an equilibrium level of deposit rates within the economy will help address the issue and protect all depositors.
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