Deposit outflow reverses course back into banks

Deposit outflow for trust deficit amid scams and for near-negative gains from savings begins reversing course back into banks, largely as rate rises provide the baits, sources say.

They say funds that flew out of the banks' vaults in recent times started returning back into the banking system as the volume of currency outside the banks dropped significantly in July 2023.

Hailing the newly introduced reference rate called SMART (Six-Month Moving Average Rate of Treasury Bill), officials and bankers say the qualified freedom to banks under the uncapped interest regime leads to rise in the deposit rates, which started alluring the potential depositors to come back into the banking channel.

According to latest statistics of Bangladesh Bank (BB), the volume of currency outside the banks was recorded at Tk 2.92 trillion in June 2023 that declined to Tk 2.66 trillion in the following month of July.

Seeking anonymity, a BB official said the central bank governor recently asked the commercial banks to take measures so that the money that went away from vaults can come back to the banking system.

"Look at the July data. It is very much encouraging for our banking sector as the volume of currency outside the banks dropped by around Tk 260 billion in just a month," the official said.

Managing director and chief executive officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman says the banks have raised both deposit and lending rates in line with the SMART rating paradigm and that changes the scenario of 'mattress money'.

The top executive of the bank finds deposit rates continuously increasing in the banking sector. There are few banks which have started offering depositors as high as 9.0 per cent.

"It is encouraging to see the depositors coming back to the banking system. I hope the volume of the mattress money will be lessening in the coming days as people's confidence in the banks keeps increasing," he says.

Talking to the FE, managing director and CEO of Dutch-Bangla Bank Limited Abul Kashem Md. Shirin said this is good news that the depositors started returning to the banking channel.

"The rate of deposit in banks started rising slowly under this SMART regime as liquidity tightness still persists in the banking system. The banks having liquidity dearth require credits to improve their balance sheet and they have been offering higher rates to allure the depositors," he said.

According to the BB data, the total volume of deposit increased by 9.69 per cent in July, 2023 from that of the previous month.

When contacted, Chairman of Policy Exchange of Bangladesh Dr M. Masrur Reaz said investment instruments for general people on the country's money market are very limited.

Excepting banks, there are areas like savings certificate and capital market where people can make investment. But the share market is unhealthy and putting money in stocks is becoming extremely risky while the rates on savings certificates have gone down logically in recent times, according to him.

"Once you invest in the savings certificates, it means your investment is blocked for few years (3 to 5 years). On the other hand, you can make periodical investment in deposit schemes in banks riding on the growing rates and get return in a shortest possible time," he said.

"That's why people are now returning back to the banks, which is a good thing," Mr Reaz added.

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