Deposits with banks rising in a rebound

Deposits with Bangladesh's 61 banks increased during July-December in a rebound from a crunch amid initial panic-driven withdrawals triggered by the student-mass uprising and subsequent uncertainty.

According to the latest report from Bangladesh Bank, the aggregate deposits with the banks rose by Tk 345.17 billion to over Tk 17.77 trillion by the end of December 2024.

Following the fall of the Hasina government on August 05, public confidence in banking eroded as many scams in the banking system came to light. The unwelcome discoveries led to huge withdrawals as clients rushed to secure their funds.

However, a turnaround is evident now with the situation substantially normalizing.

A senior official at the central bank told the FE that household savings are now returning into the banking system.

"The money kept outside banks is gradually flowing back, as depositors regain confidence and banks offer higher interest rates to attract funds," he said.

The Bangladesh Bank report highlights that persistent inflation has prompted banks to raise deposit rates to make savings accounts more attractive.

The weighted average interest rate on deposits rose to 6.01 per cent in December last, up 0.33-percentage points from July 2024.

Meanwhile, the average lending rate increased to 11.84 per cent in a 0.27-percentage-point rise over the same period.

The amount of cash held by the public outside banks had declined to Tk 2.764 trillion by December, in a drop of Tk 140 billion compared to June 2024.

However, the report says, this figure had risen steadily since October 2023, when it stood at Tk 2.460 trillion.

At the end of June 2024, total banking-sector deposits were recorded at Tk 17.427 trillion.

Time deposits, including Fixed Deposit Receipts (FDRs), saw an 8.33-percent rise, reaching Tk 15.788 trillion in December.

However, demand deposits-typically used for short-term transactions-saw only a marginal increase of less than 1.0 per cent, totaling Tk 1.985 trillion.

The regulator in the report suggests that higher deposit rates and easing concerns over financial stability are encouraging depositors to keep their money in banks rather than holding cash or mattress money.

jasimharoon@yahoo.com