The weighted average interest rate on deposit came down to four-year low at 6.99% in May due to lack of credit demand, and increased foreign loan inflow.
The deposit rate was 6% in 2010 and the weighted average rate stood at 6.08% at the end of the year, according to the Bangladesh Bank data.
The lending rate also continued to fall for the past one year, but the falling rate was relatively less than the deposit rate.
The interest rate on advance stood at 11.82%, slightly lower from 11.88% in April. The lending rate was 11.34% at the end of 2010 while the banking sector experienced the lowest deposit rate.
The country’s banking sector is reluctant to collect deposit as it has to pay more interest to depositors than they can earn from lending due to sluggish investment climate, said a senior executive of Bangladesh Bank.
Though political crisis has ebbed, private sector credit growth has slightly improved to 13% from 12% from February because the business confidence is still in confusion, he said.
The major earning source of the state-owned banks are now the government bonds and bills instead of lending, said a senior executive of a private bank.
The government borrowing that was set at over Tk38,000 crore from the banking system to meet the deficit of new budget for 2015-16 will be blessing for the banks as it will be the chance for their earning by using huge excess liquidity, investing in bonds and bills, he said.
The interest rates that ranged between 12% and 14% on saving instruments have recently been slashed down to between 11% and 13% by the government.
The depositors are now looking towards share market to get relatively more returns by investing their money.
Moreover, the government shows positive mood towards the share market by declaring several incentives which would boost investment, believe the retail investors.
The investment ceiling as a percentage of total income has been increased to 30% from 20%. In that case, the proposed tax rebate would be 15% against the existing 10%.
The listed companies also got corporate tax reduction to 40% from 42.5% in the new budget which eventually impacted positively the share market as it would enable the companies to declare handsome dividend, said analysts.