Deposit growth slips to 8.21pc in April

Deposit growth in the banking sector slowed to 8.21 percent in April, down from 8.51 percent in March, despite a slight rise earlier.

This marks the seventh consecutive month of single-digit growth, according to new data released by Bangladesh Bank on Wednesday.

At the end of April 2024, total bank deposits stood at Tk 18.2 trillion, compared with Tk 16.81 trillion a year earlier.

The central bank's figures show deposit growth was 7.89 percent in February and 8.28 percent in January.

Since September of the current fiscal year, the trend has remained subdued, with growth dipping to 7.26 percent that month, slightly rising to 7.28 percent in October, 7.46 percent in November and 7.44 percent in December.

Bangladesh Bank Governor Ahsan H Mansur, speaking at several press conferences in May, said a major reason for the decline was capital flight.

He noted that money has exited the banking system through unofficial channels, creating a liquidity crunch that high deposit rates have failed to resolve.

Banks are currently offering interest rates between 11 and 13 percent to attract deposits, but the response has been underwhelming.

The situation worsened last August after rumours circulated that Islamic Shariah-based banks might be shut down following the government change.

Many depositors withdrew funds from those banks amid uncertainty.

The governor expressed hope that the outflow would reverse over time. “The more remittances and dollars enter through formal channels, the more liquidity will improve,” he said.

Senior officials at Bangladesh Bank and economists, however, say several factors are behind the slow deposit growth.

One is reduced lending. Typically, when loans increase, so do deposits, as borrowed funds re-enter the banking system.

A senior central bank official told bdnews24.com, “Given the broader economic outlook, deposit growth should be at least 10 percent.”

Muntaseer Kamal, research fellow at the Centre for Policy Dialogue (CPD), said private sector credit growth has been consistently low.

“When businesses and entrepreneurs borrow less from banks, deposit growth naturally slows,” he told bdnews24.com.

According to the central bank, private sector credit growth stood at 7.57 percent in March--remaining below 8 percent for five straight months.

Muntaseer added that reduced government borrowing also impacts deposits.

High inflation is another factor. “With rising prices, people are left with little to save by the end of the month. That means less money is being deposited in banks.”

Data from the Bangladesh Bureau of Statistics (BBS) shows inflation has remained above 9 percent for more than two and a half years.

A treasury chief at a private bank said that while both government and private sector lending have dropped, banks are shifting focus to treasury bills and bonds.

“They see government securities as more profitable and fully guaranteed, even with high interest rates.”

Investing in different tenures of treasury bills and bonds currently yields returns of around 11.5 to 13 percent, according to Bangladesh Bank data.

That has made government securities a more attractive option for banks.

Another senior official at the central bank said rising unemployment is also affecting deposit growth.

“When more people are out of work, deposits fall. Once employment improves, incomes rise, and so do savings,” he added.