The weighted average interest rates on both deposits and advances increased during the fourth quarter (October-December) of 2024, according to the latest report by Bangladesh Bank.
Bankers indicated that certain banks struggling with liquidity shortages raised their interest rates to attract deposits, contributing to the overall increase in deposit rates.
At the end of December, the average deposit rate stood at 6.04 per cent, reflecting a rise of 2.7 percentage points from the previous quarter (July-September), as per central bank data.
Consequently, total deposits (excluding interbank transactions) in scheduled banks grew by 3.2 per cent to Tk 18.84 trillion in Q4, despite sluggish lending rates amid slow private sector growth.
Meanwhile, the weighted average interest rate on advances (lending) reached 12.05 per cent in Q4, marking an increase of over 1.0 percentage point from Q3. This indicates that some weaker banks offered higher interest rates on deposits during the review period.
The banking sector has been facing a liquidity crisis since 2023, exacerbated by reports of fund misappropriation by certain business groups, including the Chattogram-based S Alam Group. This led depositors to withdraw savings, prompting several banks, particularly major Shariah-based financial institutions, to seek emergency liquidity support from the central bank as a last resort.
According to the central bank’s report, the weighted average interest rates on all deposits during the review period were as follows: state-owned banks at 5.35 per cent, domestic private commercial banks at 6.22 per cent, foreign commercial banks at 1.72 per cent, specialised banks at 7.19 per cent, and Islamic banks at 6.98 per cent.
For savings deposits, the rates offered were: state-owned banks at 3.06 per cent, domestic private banks at 2.5 per cent, foreign commercial banks at 0.88 per cent, specialised banks at 4.31 per cent, and Islamic banks at 3.34 per cent.
For fixed deposits, the rates stood at: state-owned banks at 8.79 per cent, domestic private banks at 9.81 per cent, foreign commercial banks at 6.48 per cent, specialised banks at 8.74 per cent, and Islamic banks at 9.91 per cent.
Fixed deposit rates for tenures between six months and less than one year were: state-owned banks at 9.35 per cent, domestic commercial banks at 10.15 per cent, foreign commercial banks at 7.48 per cent, specialised banks at 8.85 per cent, and Islamic banks at 10.59 per cent.
The weighted average interest rates (as of 31 December 2024) on working capital financing loans were: state-owned banks at 12 per cent, domestic commercial banks at 12.86 per cent, foreign commercial banks at 12.18 per cent, specialised banks at 11.17 per cent, and Islamic banks at 12.35 per cent.
For term loans, the rates charged were: state-owned banks at 11.9 per cent, domestic commercial banks at 12.67 per cent, foreign commercial banks at 10.76 per cent, specialised banks at 12.86 per cent, and Islamic banks at 12.83 per cent.
Bankers believe the rise in interest rates was driven by some banks’ strategy of offering higher deposit rates to attract funds. They predict that this upward trend will persist throughout the first quarter (January-March) of 2025.
Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank (MTB), stated: “There were some banks responsible for the rise in interest rates within the banking sector. It was not only Shariah-based banks but also several private commercial banks that offered significantly higher deposit rates to attract funds.”
He further noted that the trend is expected to continue into the current quarter (January-March). “I do not foresee any reduction in interest rates during this quarter; in fact, they may increase further as some banks remain aggressive in their efforts to secure deposits for survival,” he added.
Supplementary Information:
The liquidity crisis in Bangladesh’s banking sector has been a growing concern since early 2023. Factors such as excessive loan defaults, fund mismanagement, and economic uncertainties have exacerbated the situation. The rising interest rates reflect banks’ efforts to stabilise their liquidity positions, but the long-term impact on borrowing costs for businesses and consumers remains to be seen. Additionally, the central bank has introduced tighter regulations to improve financial discipline, though challenges persist in ensuring compliance across all institutions.