Deposit growth falls to 10% in March – lowest in five months

Bangladesh's banking sector witnessed a five-month-low deposit growth in March this year registering below 10% compared to the same month of the previous year, while people's in-hand cash rose.

According to data from the central bank, total deposits reached a staggering Tk16.75 lakh crore in March, reflecting a year-on-year growth of 9.99%. Of this, time deposits have witnessed a growth of 10.37% and demand deposits 7.64%. The overall deposit growth was 10.43% in February.

When asked why the deposit growth in banks has decreased, Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said, "The inflation rate has not fallen below 9% since March last year. Consequently, deposits may have decreased to accommodate the burden of additional expenses."

"Furthermore, following the announcement of bank mergers, many banks faced pressure for deposit withdrawals. This could also be a reason for the reduction in deposits," he added.

He further said, "However, the trend cannot be understood by looking at one month's data alone. It will take at least 2-3 months to ascertain whether deposits will increase in the coming days."

Pointing out that deposits have not increased equally in all banks, the managing director of a private bank told TBS on condition of anonymity that most of the banks with positive market outlooks have achieved good growth compared to the sector's growth rate.

"Often, customers withdraw deposits from weak banks and deposit them in strong banks. Consequently, the crisis of weak banks intensifies, while the portfolio of strong banks increases," he said.

Deposit growth surpassed 10% for three consecutive months, reaching a 28-month high of 11.04% in December 2023 – a significant improvement compared to the slowdown observed in September 2021, when the growth rate dipped due to the global pandemic's economic impact.

All banks, regardless of financial health, have raised deposit interest rates. While established banks typically offer rates between 9% and 10%, some struggling banks are resorting to much higher rates, reaching up to 12%, to attract deposits. This overall increase in deposit rates, partly driven by the central bank's policy rate hike of 8.5%, is contributing to the observed growth in deposits across the banking sector.

According to data from the central bank, at the end of March this year, the amount of currency outside banks stood at Tk2.61 lakh crore. This represents an increase of Tk3,621 crore compared to February. In contrast, people held Tk2.54 lakh crore in their hands at the end of March last year.

Economists point out that money creates deposits and loans much more slowly when held outside the bank than when deposited in the bank. Consequently, money outside banks is not conducive to a growing economy.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, told TBS, "March being a festive month, the demand for cash currency is expected to increase. Therefore, the rise in the amount of currency outside the bank appears to be normal. We can attribute this growth to seasonal effects."

"Additionally, we cannot ignore the fact that public confidence in the financial sector has diminished due to factors such as bank mergers," he said.

"Moreover, the persistently high inflation rate has reduced the savings capacity of the general public. However, it's important to note that not everyone is equally affected by inflation. During periods of inflation, the rich tend to become richer while the poor become poorer. Evidence of this can be seen in the declining real wages of ordinary people, which are decreasing day by day," Zahid Hussain added.