Term deposits decline on interest rate slump

Dhaka,  Tue,  26 September 2017
Published : 18 Aug 2017, 00:52:12

Term deposits decline on interest rate slump

Banks get tightfisted in making term investment as funds switch to alluring NBFIs, luxuries
Jasim Uddin Haroon

Unrelenting fall in term deposits following decline in interest rates may turn the banks tightfisted in financing long-term investments as funds switch to alluring non-banks and consumption luxuries.

Some bankers were of this view the term deposits with the country's banking system decreased by nearly 4.0 percentage points to 53.6 per cent in the calendar year (CY) 2016 -- at minimum seven-year low in terms of percentages -- according to central bank's latest counts.

Top executives at commercial banks view that the shrinking of time deposits in total deposits is the result of the cut-down rates of interest they offer to the savers.

However, the CEOs consider the development a blessing in disguise as holding such funds involves high cost in terms of interest payments compared to other types of deposit.

But, they think the collection of this type of funds cannot be allowed to be too slow when they consider the need for making long-term investment.  

The financial stability reports prepared by the central bank from 2010 to 2016 calendar years show that the term deposit in 2010 was 57 per cent, in 2011 56.5 per cent, 54.3 per cent in 2012, 57.5 per cent in 2013, 56.4 per cent in 2014, 57.3 per cent in 2015 and 53.6 per cent in 2016.

On the other hand, some non-bank financial institutions are offering attractive rates on term deposits to lure moneyed men. The NBFIs have around 5.0 per cent share in total deposits.  

However, the share of current deposits has maintained the second position, followed by savings deposits, since 2011. The savings deposits stood second in 2010 by grabbing 22.64 per cent share of total deposits, according to the reports.

The rate of interest on term deposits, according to some CEOs, has been slashed to even 3.0 per cent in some cases. But, on average, it now comes to around 5.0 per cent.

And such fall came crashing down from a height of over 12 per cent few years back.

The higher interest (yield) rates on government savings certificates are also counted as a major reason for the slowdown in banks' deposit growth.

"Term deposits showed a moderate growth of 5.3 per cent in CY16 as against 15.1 per cent in CY15," the financial stability report 2016 said.

It said the relative proportions of term deposits decreased whereas savings and current deposits increased moderately in CY16.

"The highest interest rate on national savings certificate might be the reason for public attraction rather than investing in term deposit," the report said.

Anis A. Khan, managing director and CEO at Mutual Trust Bank (MTB), said the concern is that if the term deposits fall, then the term lending becomes difficult.

"The higher the term deposit, the higher the term lending," he told the FE.

It may cause mismatch in the deposits and lending in long terms.

The banker, however, said actually this is a very complex issue as it considers asset-liability management and needs to be studied how this reduced growth impacts on other variables of the banking industry.

Mr Khan, also chairman of the Association of Bankers Bangladesh Limited, said most probably some people have been investing in the equity markets and some in real properties.

Md Nurul Amin, managing director and CEO at the Meghna Bank, told the FE that this fall in the deposit is due to the fall in the interest rates and that this fund mostly went to other attractive destinations and consumption.

"I cannot say where the funds have actually gone but, maybe, gone for consumption and spent on luxury goods, investment in real estate and other attractive destinations," said Mr Nurul Amin, a senior banker who also served in the bankers' elite club -- ABB -- as chairman.  

Asad Khan, managing director at Prime Finance and Investment Limited, a leading non-bank financial institution, told the FE that those who have idle money now invest in other destinations they think will bring bright opportunities in future.

"Why will I keep deposit in the banking sector when I have other options with attractive future benefit, like the investment in the purchase of lands and flats?"

He, however, said there are some NBFIs offering attractive rates but some which have strong foundations offer at best one percentage point higher than that of the banks.

Editor : A.H.M Moazzem Hossain
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