Banks generous in rural deposit sourcing, miserly in lending

Banks are increasingly sourcing deposit from the countryside but their focus on rural Bangladesh keeps fading following tightfisted disbursement of formal credits, widening urban-rural financing gaps, sources say.

At the same time, the number of bank branches in the least-developed but promising areas remains almost stuck for months, leaving the potential of local economy in the lurch.

Officials and bankers have identified several factors, such as the rising cost of funds and production in this higher-interest-and-inflation regime that markedly lowered the demand for credits in the rural areas amid persisting economic sluggishness.

As a result, the flow of fresh disbursements into the rural communities continued to dry up in recent months.

In fact, banks, as part of their cost-cutting mechanism, keep reducing the number of rural outlets. Instead, they serve their rural clients through agent banking.

According to Bangladesh Bank (BB) data, commercial banks altogether mobilised Tk 20.31 trillion by end of September last and the rural areas held share of 15.93 per cent or Tk 3.23 trillion.

In the previous recent quarters, the rural-deposit share was 15.52 per cent, 15.67 per cent and 15.83 per cent by the end of December 2024, March and June this year.

In terms of lending, all the scheduled banks had invested Tk 16.20 trillion in various sectors across Bangladesh up to September 2025, with the share of rural areas being 7.46 per cent or Tk 1.30 trillion.

The remaining Tk 14.95 trillion (92.30 per cent) was invested in the urban regions.

The share of bank loans in rural territories was 12.02 per cent in June 2023.

Since then, it has been on a downturn-falling to 8.16 per cent or Tk 1.37 trillion, 7.98 per cent or Tk 1.37 trillion and Tk 1.31 trillion or 7.54 per cent by end-December 2024, March and June this year respectively.

Seeking anonymity, a Bangladesh Bank official has said alongside the disbursement of loans, the rural-deposit portfolio of banks also dropped significantly probably because of the higher inflationary pressure.

Citing data, the central banker says the share of rural deposits was 21.27 per cent or Tk 3.59 trillion until June 2023. Now it is rising in very recent months but still stood below 16 per cent.

In fact, the central banker says, the commercial banks are under immense pressure because of ballooning non-performing loan (NPL) buildups.

"So, the lenders are very cautious in financing any projects. That's one of the reasons behind the plummeting private-sector credit growth and it impacted the rural lending scenario," he adds.

Managing Director of Shahjalal Islami Bank Mosleh Uddin Ahmed says a good number of banks have been facing severe liquidity crunch following mammoth NPL pressure while few others continue regular banking operations through interbank borrowing.

The seasoned banker says a few banks have enough liquidity and they are very careful in terms of approving fresh loans amid persisting economic slowdown and to avoid further NPL risks.

"So, bank financing in rural territories becomes a serious challenge in the current banking context. That's why the rural share in bank lending continues falling," he says.

"If we really want to increase credit flow into the remote areas, we need to allow disbursement of subsidised credits or enhancing refinancing activities," he notes about the banking arithmetic.

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