Liquidity increasing in banks

Banks offer more interest than govt securities

Mahfuz Emran : Liquidity of banks have been increasing gradually due to the rise of interest rate in bank comparing to the rate of government securities. Some of the banks have been offering interest on deposit at 13.50 percent whereas, the interest rate in government securities is maximum 11.76 percent.
Bank loan interest rates are increasing. The interest rate on loans in some banks has exceeded 13 percent. Due to this, the banks have started increasing the interest rates on deposits. Some banks were already in liquidity crunch due to the appreciation of US dollar, slowdown in loan collection and image crisis. They were collecting deposits with extra interest. Now almost all banks have increased the deposit interest rates. As a result, good profit is obtained by depositing money in the bank.
Some banks have promised to double their money in five and a half years. Banks paying high interest are in liquidity crunch.
Some banks even offer higher interest rates than savings bonds and bonds. These banks are in liquidity crisis. They are desperately trying to collect money.
Mehmood Hussain worked as Managing Director (MD) in Bank Asia, NRB and lastly National Bank. He said, whether it is to control inflation or for any other reason, the government is now borrowing money at high interest rates. Because of this, bank interest is also increasing. Again, the bank’s loan recovery has decreased. There is also a crisis of money due to the dollar. Government deposits are also not available that way now. Due to these reasons, some banks are lending money on some products at high interest rates.
Now some banks are collecting money at high interest but the depositors are not getting much response. A major reason for this is that some banks have created a lack of confidence in the banking sector.
Where higher interest?
There are various accounts for depositing money in banks. People who do business and need daily transactions open current accounts. As such interest is always low. Then there is less interest as savings. And banks give higher interest on various term, fixed deposits and schemes.
At least two private banks are now taking deposits with the promise of doubling the money back in five-and-a-half years. Both the banks are giving 13.40 percent interest on such deposits.
Interest rates should rise overall. But the fact that some banks are collecting deposits recklessly by raising interest rates is not healthy. These banks are weak. They should move towards integration.
Ahsan H. Mansoor, executive director of the Policy Research Institute (PRI), a private think tank said, Apart from this, fixed deposit account can be opened for one year in various banks. There is also the facility of getting monthly profit. A bank is offering up to 11 percent interest on a one-year fixed deposit. A bank gives 12.25 percent interest if money is deposited for six years. Some other banks are offering similar or similar interest on deposits. Regular interest rate updates are available on the website of every bank and financial institution.
A managing director of a bank said on the condition of anonymity, at the time of Corona (2020), the banks had brought down the deposit interest rate to 3-4 percent in some cases. Still some depositors are forced to keep money in the bank. And some withdraw money from the bank and invest elsewhere. Now some banks are collecting money at high interest but the depositors are not getting much response. A major reason for this is that some banks have created a lack of confidence in the banking sector.
Interest on Savings certificate and Bonds
Apart from banks, savings bonds are another major means of investment for people. Savings bonds should be invested for three to five years. If savings bonds are redeemed before maturity, the rate of profit is minimum 7.71 percent. Depending on the tenure and the amount of money, there is a chance to get a maximum profit of 11.76 percent on savings bonds. However, those who have an investment of more than Tk 15 lakh in this sector, their profit decreases.
Bond interest rates are also high. The government recently borrowed money at 11.40 percent interest through 91-day treasury bills, 11.45 percent interest on 182-day bills and 11.60 percent interest on 364-day bills. Bonds with a two-year tenure bear interest of 12 percent, higher for tenures longer than that.
Interest rates should rise overall. But the fact that some banks are collecting deposits recklessly by raising interest rates is not healthy. These banks are weak. They should move towards integration.
Basically, bank chairmen’s initiatives and government decisions have fixed the interest rate on bank loans at a maximum of 9 percent from April 2020. The rate of interest on deposits was fixed at a maximum of 6 percent. However, with the onset of the dollar-crisis in 2022 and inflation nearing 10 percent, economists suggest lifting the cap on interest rates. That rate is no longer in effect.
Ahsan H. Mansoor, executive director of the private research organization Policy Research Institute (PRI), said that it is necessary to increase the interest rate overall. But the fact that some banks are collecting deposits recklessly by raising interest rates is not healthy. These banks are weak. They should move towards integration. He said that the dollar market has stabilized because of the overall increase in interest rates. Interest rates should be allowed to rise for at least six months to control inflation.