Bangladesh Krishi Bank (BKB) and Rajshahi Krishi Unnayan Bank (RAKUB) have been lending at rates lower than their cost of funds, a baffling move which explains the two state-owned specialised banks' struggle to log in profits.

As of June, BKB's cost of fund stood at 9.88 percent and RAKUB's 9.16 percent. In contrast the banks' lending rate was 8.91 percent, according to data from the central bank data.

The two banks' cost of funds was higher in comparison to other state banks. For instance, the cost of deposit for Sonali Bank was 6.29 percent, Janata 6.95 percent, Agrani 7.15 percent and Rupali 6.83 percent. 

Subsequently, at a meeting recently with the chairmen and managing directors of the two banks the Bangladesh Bank asked them to bump up their low-cost deposits to bring down the cost of funds.

“It is difficult for us to mobilise low-cost deposits as most of our branches are in the rural areas and low-cost funds mostly come from urban branches,” said Ali Hossain Prodhania, managing director of BKB.

BKB has now set the target of opening 5 lakh accounts by this fiscal year to mobilise low-cost deposits across the country. The bank has already opened 1 lakh fresh savings and current accounts, he said.

As of June, BKB's total deposits stood at Tk 24,000 crore, 68 percent of which was fixed, 5 percent current and 27 percent savings, according to data from the central bank. BKB's net losses last fiscal year soared 48.85 percent to Tk 841 crore. RAKUB has total deposits of Tk 4,357 crore, of which 65 percent is fixed deposits, 25 percent savings and 10 percent current. The bank though saw profits last fiscal year: of Tk 10.95 crore.