Growth rate of bank deposits marked nearly 4.0 per cent decline until November in the last calendar year over the corresponding period in the previous year taking its toll on the banks’ operating profits, sources said.
Bankers and experts, however, have attributed such a fall to a slowdown in trade and business activities amid the prevailing political turmoil.
Most of the banks’ operating profits dropped in 2013 compared to that of the previous year.
Although volume of the bank deposits increased, growth of fresh bank deposits dropped to 16.80 per cent in January-November period which had posted 20 per cent growth in the corresponding period last year.
Volume of bank deposits across the country increased to Tk 6115 billion in January-November period from Tk 5236 billion in the corresponding period, according to data of Bangladesh Bank (BB).
Noted economist and Executive Director of Policy Research Institute (PRI) Dr Ahsan H Mansur listed two reasons for the decline in growth rates of bank deposits.
“Negative growth in remittance flow and shift in investment to government savings tools are the two major reasons of slowdown in deposit growth of banks,” he said.
Cash or financial flow into the economy has marked a sluggish trend in the recent times, he added.
Banks have cut rate of interests on bank deposits, while the government offered a lucrative return on investment in savings instruments, he said.
Association of Bankers, Bangladesh (ABB) chairman Ali Reza Iftekhar, who is also Managing Director (MD) and CEO of Eastern Bank Limited (EBL), however, said there are no reasons for being worried over the cut in interests on bank deposits as liquidity is available now.
“We can increase deposits by 25 per cent, but it will be idle money in banks as credit demand is low following sluggish investment trend,” he said.
He acknowledged the shift of some investments to savings instruments due to higher rate of return on them.
Mr Iftekhar said investment in savings tools is not banking transaction, as banks offer a complete package to clients with relevant facilities for business operation and import.
Mohammad Masoom, Deputy Managing Director (DMD) of Mercantile Bank said banks are focusing on low-cost and no-cost deposits to reduce cost of fund.
“The economy is facing a stagnant situation caused by non-economic factors. Banks are not gearing up efforts to mobilise fresh deposits due to reduction in credit demand,” he said.
Around 85 per cent of income of banks depends on interest rates on lending, Mr Masoom said.
“Most of the investors have adopted the wait-and-see approach resulting in the decline in import,” he said.
He also reiterated increased investment in savings instruments, compared to that of banks.
A senior BB official said the growth of bank deposits showed an upward trend in 2010 due to boom in the share market.
“Money multiplier effect was a reason of the higher growth in bank deposits that year and onward,” he said.
The growth rate of bank deposits is gradually decreasing now as many of the depositors may prefer investment in savings tools following attractive investment incentives, he said.
According to the income tax law, the bank depositors, who have Taxpayers Identification Number (TIN), have to pay 10 per cent tax at source on profits of bank deposits. However, additional tax at 5.0 per cent will be charged in case of not having TIN.
Rate of profits is also higher in the savings instruments. Rate of tax at source is lower on profits earned from savings tools compared to that of bank interest. However, savings tools focus on small savers under a few categories.
– Courtesy: The Financial Express.