Banks have been hit hard by the government's decision to suspend auctioning treasury bonds, especially as the sector is already bogged by a continued crunch in private sector credit demand and a declining interest rate in the call money market, bankers said.
The private sector has failed to respond despite the banks' repeated lowering of lending interest rates over the past couple of years, they said.
Scheduled banks typically invest over 90 percent of their idle funds in the government bonds that generate between 8.4 percent and 11.97 percent returns, according to Bangladesh Bank.
Also, the private banks have been effectively blocked from utilising the capital market for short-term profits as the central bank remains insistent that they work to cut the stockmarket exposure down to 25 percent of paid-up capital by July next year.
“Banks are under pressure as the sluggish business trend is set to affect profitability,” said Anis A Khan, managing director and chief executive of Mutual Trust Bank.
The overall situation has been generating a lot of excess cash that banks cannot invest in government treasury bonds.
The return on the call money rate has come down to just 5.25 percent, making that window less attractive for the bankers as well.
Bangladesh Bank has kept the auction of treasury bonds on hold since the first week of May after it found that the government had Tk 11,000 crore in excess funds, earned mostly by selling high-cost savings certificates to the public.
“We could have made some profit by investing our surplus funds in the government bonds, but that is not an option right now. Also, there is hardly any demand for money in the call money market,” said Shafiqul Alam, managing director of Jamuna Bank. Jamuna Bank's consolidated net profit between January and March was down to Tk 3.84 crore from Tk 7.88 crore earned in the same period last year.
Net investment in savings instruments rose 184 percent to Tk 21,184 crore in the first nine months of the outgoing fiscal year compared to Tk 7,461 crore for the same period a year ago, according to the Directorate of National Savings.
People parked their money in the savings tools as the rate of return against deposits in banks had been declining for the past two years. Banks now offer a 7-9 percent interest rate on the fixed deposit schemes, while the savings tools offered between 12.59 percent and 13.45 percent returns until May. “This gap of 4-5 percentage points lured people to buy savings tools increasing the government's interest payments,” a senior BB official said.
Bankers said lending rates have been reduced by 2 to 3 percentage points in the last year, while interests on deposits went down further. Corporate and term-loans now cost 12 to 13 percent, down from 15 percent a year ago. “A good borrower can borrow at less than 12 percent,” said the Jamuna Bank CEO. Even then, the industries are reluctant to borrow from the banks.
Private sector credit growth was down to 13.26 percent in April from 13.6 percent a month ago, according to Bangladesh Bank.
Prime Bank's consolidated net profit stood at Tk 78.21 crore for the January-March quarter, almost half of the bank's income in the same period last year.
Foreign currency loans taken by local enterprises are also squeezing the banking sector's business space, said Ahmed Kamal Khan Chowdhury, managing director and CEO of Prime Bank.
Foreign loans are typically available at 4.5-5 percent interest, data shows. Many local companies have used these low-cost loans to pay off their outstanding loans with the local banks ahead of schedule, cutting the local banks' stream of future earnings.
News:The Daily Star/19-Jun-2015
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