Recent removal of the minimum interest rate payable on cash deposits, no doubt, presents a perfect opportunity for the lenders to be more proactive in dealing with their customers. Without the cap, banks now have more latitude to set prices that enable them to competitively attract depositors.
It is therefore not surprising that several banks have followed through with advertisement of new deposit rates that set them apart from their competitors.
The catch, however, lies in the World Bank’s recent warning that removal of the floor on customer deposits could increase bank profitability without necessarily increasing their lending, especially to small and medium enterprises. But the reality is that it offers banks a wider spread – the difference between deposit and lending rates – that should help in proper assessment of customer risk for purposes of pricing their loans. While the essence of the deposit cap removal was to reduce the cost of funds for banks and increasing return on equity, the lenders must go beyond this and use the opportunity to better price loans.
For it should be in the interest of everyone that small and medium-sized businesses not only survive but thrive to play their role in the wider economy.
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Note: The results are not exact but very close to the actual.
