Deposit growth rises for three straight months

Infographics: TBS

The country's banking sector has seen steady deposit growth over the past three months, driven by growing confidence in healthy banks and reduced lending to shell companies.

According to data from the Bangladesh Bank, deposits in banks rose to Tk17.63 lakh crore in November – a 7.46% increase from Tk17.31 lakh crore in the same month of 2023. 

Deposit growth had hit an 18-month low in August at 7.02%, but the situation began improving in September, with deposits increasing by Tk14,208 crore compared to the previous month. 

The deposit growth rate rose to 7.26% in September, reaching 7.28% year-on-year in October, when deposits totalled Tk17.55 lakh crore.

Senior bank officials attributed the earlier slowdown to diminished customer confidence following several irregular loan cases. Concerns about deposit withdrawal from weak banks further worsened the situation.

Since Ahsan H Mansur became Bangladesh Bank governor in August, measures such as restructuring the boards of 11 banks, providing liquidity support to weak banks, and curbing loans to shell companies have been implemented. 

While weak banks remain a challenge, these steps have prevented further decline. At the same time, rising confidence in healthy banks has spurred deposit growth.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, told The Business Standard that the private lender attracted Tk5,000 crore in new deposits in 2024. 

"The pressure to withdraw deposits has eased, and the demand for loans has decreased due to high interest rates. As a result, the outflow of deposits as loans has reduced, improving banks' liquidity," he explained.

Central bank data shows deposits grew by about Tk28,000 crore from September to November 2023 and by Tk32,000 crore over the same period in 2024. 

The seasoned banker said the upward trend in deposits has been accompanied by a reduction in currency held outside banks, which economists view as beneficial for the economy.

After ten months of consecutive increases, the amount of money outside banks has begun to decline gradually. In November, it decreased by Tk354 crore from the previous month, totalling Tk2.77 lakh crore. 

However, this figure remains 11.68% higher than in November 2023. In October, the decline was Tk5,743 crore, with September's total standing at Tk2.84 lakh crore.

Economists warn that rising amounts of money outside banks harm the economy by reducing money circulation and hampering money creation. The return of these funds to banks improves liquidity and increases loanable funds, fostering investment.

Central bank data indicates that the amount of money outside banks was Tk2.46 lakh crore in October 2023. It climbed steadily each month, peaking at Tk2.92 lakh crore by July 2024. 

However, disruptions such as internet outages and the assumption of office by the interim government following the fall of the Awami League slowed the increase in August. From September, money began returning to banks.