Bank deposits drying up as inflation bites

Banks seem having hit the brakes on deposit mobilisation as the January-March first quarter of this year frustrated their expectation, in a rare development that analysts blame on persisting higher inflation on the economy.

The deposit receipt contracted 0.75 per cent to Tk 17.62 trillion at the end of March over its preceding quarter, according to Bangladesh Bank statistics.

These exclude interbank items, meaning that these are purely customer deposits.

However, the customers' deposits grew by 0.57 per cent to Tk 14.91 trillion in the urban areas from where around 85 per cent of the money comes. And the rural deposit growth increased by 1.8 per cent to Tk 2.71 trillion.

In the meantime, overall deposit growth was recorded 2.1 per cent to Tk 17.49 trillion in the October-December period.

At the end of March 2024 bank deposits registered an increase of 9.25 per cent or Tk 1.49 trillion on a year-on-year basis.

Senior central bankers told the FE that this slow growth is mainly due to stubbornly higher inflation, national elections in January and Ramadan spending.

Some top executives of banks were critical of the slower growth as they need deposits "for survival".

"It's rare that deposits decreased in March at a time when the government bank has planned to borrow much from banks," said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank or MTB, a leading privately-owned commercial bank.

The government has a target of borrowing Tk 1.375 trillion from the banking system in the upcoming fiscal year (FY 2024-25) to finance budget deficit.

"Quarter-to-quarter growth is important and the slowest growth is alarming," says the noted banker.

Emranul Huq, managing director and CEO of another private commercial bank - Dhaka Bank - told the FE that inflation is the main culprit behind it. "Many savers withdraw funds to compensate for the price surges in the market," he said.

"Usually, bank deposits used to come from the middle-income group of people through DPS and yearly savings schemes, but the middle-income people are in trouble due to the inflation."

Economists, however, put stress on the year-on-year growth figures as quarterly data often have seasonality matters.

But they say the deposit growth of 9.25 per cent y-o-y is also alarming for the economy as the government has planned to borrow Tk 1.375 trillion.

"If bank deposit grows by 9.0 per cent annually, then it will expand at Tk 1.53 trillion. And if the government borrows Tk 1.375 trillion from the banking system, what amount will remain for the private sector? Questions Dr Mansur Reaz.

Dr Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh, thinks many depositors lacked confidence in the banks as once the central bank announced mergers and later backtracked.

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