Bank deposits on the rise
Deposits in banks stood at Tk15.63 lakh crore at the end of May with new deposits of Tk15,300 crore, according to central bank data
Deposits grew by 8.81% in May, the highest in the last 11 months despite the decade's highest inflation as customer confidence in banks returned.
Deposits in banks stood at Tk15.63 lakh crore at the end of May with new deposits of Tk15,300 crore, according to central bank data.
Sector insiders said in November and December last year, there were many cases of disbursing loans by violating rules in several banks. Due to this, many customers started withdrawing their deposits from the banks. As a result, bank deposit growth fell to 5.67% in December.
Banks also fell into a liquidity crisis as they could not cope with the pressure of deposit withdrawals, bankers said.
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Later, however, the banking sector managed the situation by borrowing money overnight through repo from the central bank. Consequently, deposit growth started to pick up from January and it peaked in May.
Experts expect this growth to increase further in June.
Association of Bankers Bangladesh (ABB) Chairman and Brac Bank MD and CEO Selim RF Hussain said, "Our bank is seeing a deposit growth of about 30%. Good governance is one of the reasons why customers trust us.
"Whether a customer keeps a deposit in a bank or not depends on what kind of service a bank is providing to customers – does it provide digital services? Does it ensure transparency? Banks that can ensure these facilities are getting deposits."
The central bank said loan growth in the banking sector fell to 11.72% in May. It has been on a downward trend for the past few months. Loan growth was 13.26% last February. However, the creation of new loans also decreased due to the decrease in opening of import letters of credit (LCs).
A senior official of the central bank said, "A major part of our loans is generated by opening import LCs. LC openings fell by more than 25% due to various measures taken by the central bank because of dollar shortage. This has a direct impact on loan growth. In May, deposits increased more than loans. Given the current context, this is certainly a good signal for the overall banking sector."
According to central bank data, the interest rate on deposits in the banking sector increased to 4.41% in May, up from 4.38% in April.
Mainly because the central bank lifted the cap on the deposit interest rate, the banks in the deposit crisis have increased the interest rate, the central bank official told The Business Standard. Also, the landing rate increased by 3 basis points to 7.32% in May compared to April.
On 15 January this year, the central bank lifted the deposit rate cap of 6% and allowed a 3% interest rate hike on consumer loans. Subsequently, commercial banks increased the deposit rate to attract more deposits.
Money outside banks decreases by Tk7,500cr
Central bank data show that the amount of money in the hands of people decreased by Tk7,500 crore and stood at Tk2.56 lakh crore in May from Tk2.63 lakh crore in April.
Bankers said when money outside banks decreases, the liquidity flow in banks grows. It is very positive for the whole economy because the liquid money circulation increases when it is in the banking channel. It creates more deposits and loans, which increases the pace of economic activities in a country.
Ali Reza Iftekhar, managing director and CEO of Eastern Bank Limited, told TBS that deposits are not increasing equally in all banks. "It is normal that deposits will increase less in weak banks. On the other hand, good banks are getting more deposits, which is why they are not increasing the deposit interest rate much.
"Now there is no crisis of local currency in the banking sector."
