Fearing political instability in the upcoming days, the country's entrepreneurs remain shy of making investment, leaving the banks to experience sluggish business.
The continuous fall in credit growth has resulted in swelling of the banks' liquidity status, which makes several banks think of cut in interest rate of deposits.
According to the Bangladesh Bank data, the spread between deposit and credit remained below 5% for last couple of months. The lower spread has cast a negative impact on both incomes and profits of the banks.
The aggregate amount of available excess liquidity of banks increased to Tk730bn in June from Tk456bn a year ago, showed the central bank figures.
"Entrepreneurs are observing wait and see policy in making investment decision before national election," said Atiqul Islam, President of Bangladesh Garment Manufacturers and Exporters' Association (BGMEA).
Besides, high interest rate and land value act as big barriers in investment for the entrepreneurs, he added.
The private sector credit growth from domestic sources declined to 11.4% in May from 19.7% in June last year.
The figures of last fiscal year from October to May showed continuous falls in credit growth. In October, it was 18.4%, November 17.4%, December 16.6%, January 14.8%, February 14%, March 12.7%, April 12.7% and May 11.43%.
According to the bank officials, the slowdown in private sector credit growth was triggered by fears of political instability mounting among the investors ahead of national election and tightening of lending policy after revelation of loan scams.
"No positive change is visible in the country's investment environment while the banks take no new initiative to increase investment against entrepreneurs' fears of political turmoil," said Nurul Amin, Managing Director of National Credit and Commerce Bank Ltd.
He said the low investment spread rate between deposit and credit casts negative impact on the banks' profit.
Also, call money rates fell to 7% in June from 10% in January and from around 20% in early 2012, suggesting the liquidity in banking system continues to become bigger and bigger.Â
The fact also exposes when the ratio of loan against deposit falls below average.
At the retail level, both the deposit and the lending rates declined in the second half of last fiscal.
Since the interest rate spreads fell to 4.98% in May from 5.06% in June last year on an average as the lending rates dropped faster than the deposit rates.
An official said the domestic lending rates fell as banks had to spend less to get funds, the demand of credit is low and the overseas lenders offer single-digit rates.
In this circumstance, banks plan to take step to discourage deposit by cutting rates.
"Because of excess liquidity, we may opt for further slash in deposit rates," said Kazi Faqurul Islam, managing director of BASIC Bank Ltd.
He said the central bank has an important role play by keeping deposit rates lower which will help the bankers to fix interest rates at reasonable level. "Such steps will encourage entrepreneurs to take loans for investment."
Banks have also been affected by the country's disasters-hit readymade garment sector, as many export bills remain due.
As a result, banks are not opening any new letter of credit (LC) for the RMG exporters. Considering the current worse situation in the RMG sector, banks can help them through a win-win deal, but in that case, the entrepreneurs would need to submit a formal demand.
