The is due to the banks reluctance to collect funds at high interest rate amid sluggish investment climate, bankers said 

Interest rates on bank deposits have gone down to as low as 7% in June this year, breaking a steady trend of over 8% in the last 27 months.

The is due to the banks reluctance to collect funds at high interest rate amid sluggish investment climate, bankers said. 

The deposit rate stood 7.79% in June from 8.01% in the previous months. It ranged between 8.68% and 8.01% for more than last two years. Earlier, the rate came below 8% in February 2012 and stood at 7.95%. The deposit growth dropped to 15.89% in June from 16.26% in December last year, as a result.

Banks have reduced the interest rate on deposit as they are unable to invest the money due to lack of credit demand, said a senior executive of a private bank.

“We have also reduced the lending rate to encourage entrepreneurs for becoming more active in their business expansion as the economy started returning to normalcy after a prolonged political unrest,'' Pubali Bank Managing Director Helal Ahmed Chowdhury told the Dhaka Tribune.

He said all the scheduled banks would cut their lending rates gradually as they are under pressure to reduce it because of the robust foreign loan inflow.

The interest rate on advance loans reduced to 13.1% in June from 13.23% in the previous month.

The total deposits of the banking sector increased by 5.15% to Tk610,530 crore in October-December period of 2013 as compared to 50.62% growth to Tk532,633 crore in the same period of previous year, according to latest Bangladesh Bank figures.

The banks failed to utilise the deposits due to lack of investment opportunities before the general election on January 5, said a senior executive of another private bank.

As a result, he said, the banks were reluctant to collect deposits and reduced the deposit rates to discourage depositors.

Consequently, the depositors are now searching for new opportunities to get lucrative return from their idle money, he said.

“The depositors have turned their eyes on the share market as the retail investors to some extent got back their confidence after the demutualisation of the stock exchanges,'' he said.

The interest rate spread went up abnormally in the recent months due to deeper cut in deposit rate than the lending rate. 

As a result, despite warning of the central bank to keep the interest rate spread at the desired level of 5%, the spread between the lending and deposit rates further rose to 5.31% in June, which is highest in 17 months. It was 5.22% in May. At the bankers meeting held last month, the central bank warned the banks of bringing down the spread at a desired level.

The spread was 5.33% in December 2012 when the lending rate was 13.8% and deposit rate 8.47%. The spread ranges between 4.95% and 5.15% in last one and half years.

The central bank though tried to keep the spread at 5%, it went up from February after coming down at 4.99% in January.

The gap rose again as banks were forced to cut their deposit rate due to low investment demand and easing money market conditions. They slashed the lending rate slightly as compared to the deposit rate cut that caused an imbalance between the rates and pushed the spread up, said a senior executive of Bangladesh Bank.