The flow of money or liquidity in the country’s banking sector is decreasing. In the last 9 months, liquidity has decreased by Tk 63 thousand crores. The data of Bangladesh Bank says that in recent times money has been withdrawn from the bank, but money has come into the bank less. Generally, the growth of deposits in banks is higher than that of loans. But recently this situation has reversed.
According to the Central Bank’s latest report, loan growth is now faster than deposits. Deposits increased by 1.14 percent in the 9 months from July to March of the current financial year. In contrast, the debt increased by 6.7 percent during the same period. That is, loans have increased by 5.56 percent more than deposits.
In this context, the chairman of private BRAC Bank and executive director of Policy Research Institute (PRI) Ahsan H. Mansoor said that this increase in deposits will not do anything in terms of loan distribution. If this slowdown in deposits continues, banks will reduce lending.
He also said that the central bank is selling dollars to commercial banks at the rate of 104 taka 50 paise every day. As a result, money has gone from the market to the central bank. On the other hand money is converted into dollars and is going abroad. It has created a liquidity crisis in the banking sector. There are several dangers associated with reduced liquidity. The government has already given assistance of Tk 24 thousand crore to Islami Bank alone to protect it from this danger.
According to the data of Bangladesh Bank, at the end of June last year, the liquidity in the banks was 4 lakh 41 thousand 681 crores. At the end of this March (in 9 months), the liquidity has decreased to 3 lakh 79 thousand crores, which is 14.25 percent. Earlier, the liquidity in the banking sector reached a maximum of Tk 4 lakh 50 thousand crores in June 2021 during Corona. From then till June 2022 the liquidity went through fluctuations. The downward trend started from June last year, which is still continuing.
The central bank’s report identified six reasons for the decline in liquidity in the banking sector. These are – Post-corona, sudden increase in demand for loans. Due to increase in the price of goods in the international market, excessive increase in import costs, the tendency to withdraw cash from banks and keep it in the hands of customers has increased. Apart from this, there is a decline in deposits, export earnings and remittance flows and depreciation of the rupee against the dollar.
Incidentally, to protect the interest of the depositors and to reduce the bank’s risk, a part of the total deposits has to be kept as statutory deposit with the central bank. Of this, the general banks have to keep 17 percent of the total deposits. Islamic banks have to keep about 10 percent of total deposits.
According to the report of Bangladesh Bank, in June 2021, the liquidity in the banks was 4 lakh 50 thousand crores. In June last year, the liquidity in the bank was Tk 4 lakh 41 thousand 681 crore. In July it decreased to 4 lakh 22 thousand crores. In August it further decreased to Tk 4 lakh 18 thousand crores. In September it further decreased to Tk 4 lakh 16 thousand crore. In October, it decreased to 4 lakh 15 thousand crores. Liquidity decreased by Tk 4 lakh crore in November. In December, it further decreased to 3 lakh 98 thousand crores.
In January this year, the liquidity further decreased to Tk 3 lakh 86 thousand crores. 3 lakh 82 thousand crores decreased in February. In March, the liquidity further decreased to Tk 3 lakh 79 thousand crore as provisionally.
However, despite the decrease in liquidity, deposits have increased by Tk 1 lakh 6 thousand 615 crore in the last one year (up to March). Compared to January, deposits have increased by about 17 thousand crore rupees in the month of February alone. This information is known in the latest report of Bangladesh Bank.
In March 2023, the total deposits in the bank sector stood at 15 lakh 23 thousand 991 crores, which was 14 lakh 17 thousand 219 crores in March 2022. That is, deposits have increased by 7.53 percent.
According to Central Bank data, deposits in the banking sector increased by Tk 18,000 crore in March. Deposits increased by Rs 17,000 crore in February. In February, the amount of deposits in the bank sector was 15 lakh 5 thousand crores. At the end of March, it stood at 15 lakh 23 thousand crores. Analysts believe that people are once again returning to banks to save money due to rising interest rates and lack of alternatives. And the bank officials say that the commercial banks have increased the interest rates of customers’ deposits for several months.
According to the data of the Central Bank, in May 2021, where the annual deposit growth was about 14.5 percent, it fell to 5.5 percent in December last year. They did not have the freedom to increase the interest rate at will even if they wanted for so long. Now the banks have got that freedom.
In April 2020, according to the directives of Bangladesh Bank, there was an obligation to keep the interest rate on loans between 9 percent and the interest rate on deposits between 6 percent. Banks have raised interest rates to compete for deposits after the cap was lifted in the latest monetary policy. Now some banks are offering up to 8 percent interest to customers. Whereas the average interest rate last December was just over 4 percent.
In this context, the former governor of Bangladesh Bank. Salehuddin Ahmed said, the interest rate in the bank was low for some time. Apart from this, there was a crisis of confidence due to various reasons. Many have taken money from banks and bought land, flats and luxury goods. But now the deposit interest rate is increasing. Because of this, deposits in the bank sector are increasing.
However, apart from the increase in interest rates, bankers are citing three other reasons behind the increase in deposits.