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Bulging mattress money?    

Shamsul Huq Zahid   | Published: February 14, 2019 22:16:38 | Updated: February 15, 2019 21:27:27


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Banks are reportedly worried because their deposit growth has declined lately.

The central bank statistics show the banks' deposit growth had been on a declining path during the last three years.

In December, 2016, the deposit growth rate was 13 per cent. Next December it came down to 10.22 per cent. The year 2018 ended with a deposit growth rate of 9.0 per cent. 

Most banks are found to be desperate to attract deposits, time-deposits in particular.  Their desperation would have been far greater had the demand for funds either from the government or the private sector been in line with the trend witnessed some years back. 

The government borrowed less than usual from banks in recent years. However, during the first quarter of the current fiscal year, the borrowing has picked up slightly. However the growth in government borrowing from the banking system has been far smaller in recent times than that from non-bank borrowing sources.

A couple of factors---drop in average interest rates to around 5.0 per cent on deposits and higher yield (more than 11.0 per cent) of government savings instruments--- is blamed for making the depositors uninterested in keeping their funds with scheduled banks.

As far as interest rates on deposits are concerned, banks are to blame themselves, for their owners dictated both deposit and lending rates instead of allowing the market forces to determine the same.

Why should the people be interested in keeping money with banks if the same fetches them a return, the rate of which is even below that of inflation?

The rate of inflation, according to official statistics, has been slightly below 6.0 per cent for quite for many months. Depositors are not expected to earn negative return on their funds. Unfortunately, that is happening to them in recent months.

What had led the banks to lower deposit rates some months ahead of the national polls is known to all concerned. Businesses have been pressing the government to ensure lending rates at single digit to help cut their cost of doing business, to some extent. It is quite natural for them to make such a demand.

But the enthusiasm on the part of a section of sponsor directors of banks to assure the power-that-be of its full cooperation to bring down the lending rate to single digit had stirred up surprise. Relevant people did know that the implementation of such a decision was not possible for a number of factors the principal one being the presence of a huge volume of soured loans.

Yet banks had cut deposit rates to facilitate fixing of lending rates at single digit. But most banks, barring export and farm sector financing, are still holding on to double digit interest rates.

But if private funds are not going to banks, then where are they going to? Are people making large investments in stock market or in government savings instruments?

There is no denying that savings certificates (NSCs) have been attracting many savers because of their relatively high yield rates. But statistics available with the Bangladesh Bank (BB) do not substantiate the claim of any major flow of private funds to NSCs in recent months.

The net sales of government savings tools during the first half of the current financial year was around Tk 250 billion compared with that of about Tk 239 billion during the corresponding period of the last financial year.  The difference of Tk 11 billion is too small an amount in comparison with the decline in bank deposits.

Stock market remains to be another potential destination of savers' funds. Most people are aware of the market condition. In fact, the market has been struggling hard for about eight years to regain confidence of the investors. Neither daily turnover nor movement of key index of the market does point to any notable flow of local funds into the market.

The declining image of banking industry and falling deposit rates could be discouraging a section of people from keeping their funds with banks.

But where have their money gone, then? Are they keeping their funds under the mattress? In that case, the size of the mattress money could soon cause enough of headache for the relevant people.  

zahidmar10@gmail.com

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