Bank deposits rise 8.21% in April, growth slows

NN Online:
Bank deposit growth in Bangladesh slowed to 8.21% in April, down from 8.51% in March, despite a brief upward trend earlier. This marks the seventh straight month of single-digit growth, according to Bangladesh Bank data released Wednesday.

As of April 2024, total deposits stood at Tk 18.2 trillion, up from Tk 16.81 trillion a year earlier. Growth had hovered at 8.28% in January and 7.89% in February, reflecting a consistently sluggish trend since September, when growth dipped to 7.26%. It inched up slightly in the following months—7.28% in October, 7.46% in November, and 7.44% in December.

Bangladesh Bank Governor Ahsan H Mansur attributed the slowdown primarily to capital flight, with funds leaving the banking system through unofficial channels. Despite deposit rates ranging from 11% to 13%, banks have struggled to attract new deposits.

Concerns deepened last August amid rumors that Shariah-based Islamic banks might be shut down after a change in government. The uncertainty led many depositors to pull out funds, worsening the liquidity crunch.

Governor Mansur expressed cautious optimism, stating that increased remittances and inflow of dollars through formal channels could gradually ease the pressure.

Experts point to multiple contributing factors behind the weak deposit growth. One is low private sector credit expansion, which has stayed below 8% for five consecutive months, standing at 7.57% in March. Typically, loan disbursement drives deposit circulation, but subdued borrowing has disrupted this cycle.

“Given the broader economic environment, we should be seeing at least 10% deposit growth,” a senior central bank official said.

Muntaseer Kamal, a research fellow at the Centre for Policy Dialogue (CPD), noted that reduced government borrowing and persistent inflation have also hurt savings. “When costs rise, people have less to save,” he said.

Inflation has remained above 9% for over two and a half years, according to the Bangladesh Bureau of Statistics.

Meanwhile, banks are turning toward government securities, such as treasury bills and bonds, which offer secure returns between 11.5% and 13%. A treasury head at a private bank remarked, “With lower credit demand, banks see government instruments as safer and more profitable.”

Unemployment is another challenge. A central bank official noted that fewer jobs mean fewer savings, further dampening deposit growth. “Once employment improves, we can expect to see deposits pick up again,” he added.