Lately, many banks have started slashing deposit rates to stem negative impacts of lethal combination of excess liquidity and subdued lending market.[break]
Although most of the leading banks have so far been able to retain much of their deposits, StanChart saw its deposit base shrink to Rs 34.99 billion by the end of the first quarter of the current fiscal year, as against Rs 40.75 billion recorded in the same period last fiscal year.
Of the amount, Rs 3.28 billion had disappeared from local currency deposit accounts and Rs 2.43 billion from foreign currency deposit accounts, unaudited figures published by the bank shows. Together, this marked a drop of 14 percent in deposits.
Although the bank had started witnessing deposit flight from late last fiscal year, the situation was expected to improve this fiscal year. But in the three months to October 16 alone, the bank lost Rs 971.94 million in deposits.
This was largely because of drop in fixed and call deposits, which, in turn, was triggered by reduction of interest rates on those products, the bank said.
Lately, StanChart has brought down fixed deposit rates to around three percent from as high as nine to ten percent a year ago, according to Diwakar Poudel, head of corporate affairs at the bank. “Similar reductions were made to call deposit rates,” he said.
“Although we knew the move to reduce interest rates would ward off depositors we made a conscious move in this regard to diversify our deposit product range.”
Like most of the banks and financial institutions, StanChart had raised interest rates on deposit products during liquidity crisis to attract customers. But as the situation started improving since July last year many institutions started slashing deposit rates.
“The downward revision of rates triggered migration of depositors, who had parked money in fixed and call accounts,” Poudel said. “This caused the bank to lose around Rs 9 billion in deposits.”
The bank has, however, clarified the latest shrinkage in deposits should not mean customers have lost interest in the bank, as, according to Poudel, Rs 4 billion was added to savings deposit accounts in the last one year period.
Savings deposits contributed to around 50 percent of the total deposits collected by StanChart in last fiscal year, Nepal Rastra Bank report shows. Although latest central bank figures are not available, Poudel said the figure has now gone up to around 70 percent.
“If customers were really unhappy with us, then there would have been reduction in savings deposits as well,” he said, pointing to addition of Rs 4 billion in the last one year period.
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