Flash Report /
Bangladesh

Bangladesh: Post office savings rate reduction to increase bank deposits

    IDLC Securities
    16 February 2020
    Published byIDLC Securities

    Bangladesh's Finance ministry has reduced the FDR rate of the post office by almost 50% with a view to promoting deposit mobilization through the banking channel. Countrywide, more than 8,500 post offices are allowed to collect deposits through two types of accounts - Post Office Savings Bank (POSB) Ordinary A/C and POSB Fixed Deposit. The changes in the rates are as follows:

    AccountsNew RatePrevious Rate

    Post office Savings Bank - Ordinary A/C

    5.0%

    7.5%

     

    Post office Savings Bank Fixed Deposit – 3 years Period

    6.0%

    11.28%

    Profit if not withdrawn after each 6 months 

     

     

    1st year

    5.0%

    10.2%

    2nd Year

    5.5%

    10.7%

    3rd Year

    6.0%

    11.28%

    Profit if withdrawn after each 6 months 

     

     

    1st year

    4.0%

    9.0%

    2nd Year

    4.5%

    9.5%

    3rd Year

    5.0%

    10.0%

    Source: Bangladesh Finance Ministry

     

    Analyst comments 

    • These postal savings constitute c16% of the total National Savings Directorate (NSD) instruments. We think this is the first move towards adjusting the higher risk-free rate. 
    • In recent times, deposit collection from POSB was the highest among all the NSD instruments sales. In the first six months of FY2020, total net NSD instrument sales were BDT54,330mn (USD639mn) whereas the total deposit in POSB was BDT79,350mn (USD934mn), which suggests all other instruments sales were negative (NSC sales a negative USD375mn). 
    • We think this a good move from the government to control NSC sales. We expect more money to flow into the money market and thus banks to get deposits at a lower rate. 

    Table 1: NSD Instrument Outstanding (December 2019)

    Instruments TypeAmounts in BDT mnAmount in USD mnComposition

    National Savings Certificate

    2,317,798.2

    27,268.2

    78.6%

    a) 5-year Bangladesh Saving Certificate

    356,669.2

    4,196.1

    12.1%

    b) Family Savings Certificate

    1,029,345.3

    12,109.9

    34.9%

    c) 3-month interest-bearing saving certificate

    714,412.9

    8,404.9

    24.2%

    d) Pensioner Savings Certificate

    217,370.8

    2,557.3

    7.4%

    Savings Bond 

    141,908.1

    1,669.5

    4.8%

    a) Bangladesh Prize Bond

    5,822.6

    68.5

    0.2%

    b) Wage Earners Development Bond

    111,171.6

    1,307.9

    3.8%

    c) US$ Premium Bond

    2,867.8

    33.7

    0.1%

    d) US$ Investment Bond

    22,046.1

    259.4

    0.7%

    Post-office Savings Bank

    478,044.3

    5,624.1

    16.2%

    a) General Account

    31,847.3

    374.7

    1.1%

    b) Fixed Account

    445,818.6

    5,244.9

    15.1%

    c) Bonus Account

    378.4

    4.5

    0.0%

    Others

    9,261.2

    109.0

    0.3%

    Total NSD Instruments Outstanding

    2,947,011.8

    34,670.7

    100.0%

    Source: Bangladesh Bank, National Savings Directorate

     

    Table 2: NSD Instrument net sales in FY2020 (6 months to December)

    Instruments Type (Amounts in BDT mn)Jul - Dec, FY 2020Jul - Dec, FY 2019Growth

    National Savings Certificate

    -31,832.0

    203,266.0

    -115.7%

    a) 5-year Bangladesh Saving Certificate

    20,974.0

    25,614.0

    -18.1%

    b) Family Savings Certificate

    -36,231.0

    77,154.0

    -147.0%

    c) 3-month interest bearing saving certificate

    -27,690.0

    84,599.0

    -132.7%

    d) Pensioner Savings Certificate

    11,115.0

    15,899.0

    -30.1%

    Savings Bond 

    6,800.0

    5,789.0

    17.5%

    a) Bangladesh Prize Bond

    253.0

    196.0

    29.1%

    b) Wage Earners Development Bond

    6,366.0

    5,535.0

    15.0%

    c) US$ Premium Bond

    -32.0

    -93.0

    -65.6%

    d) US$ Investment Bond

    213.0

    151.0

    41.1%

    Post-office Savings Bank

    79,350.0

    40,872.0

    94.1%

    a) General Account

    3,257.0

    2,256.0

    44.4%

    b) Fixed Account

    76,093.0

    38,616.0

    97.1%

    c) Bonus Account

    0.0

    0.0

    0.0%

    Others

    14.0

    9.0

    55.6%

    Total NSD net Sales (Jul-Dec FY2020)

    54,332.0

    249,936.0

    -78.3%

    Source: Bangladesh Bank, National Savings Directorate