Scheduled banks’ total deposit liabilities, excluding interbank items, surged by Tk 250.52 billion, a 1.58% increase, reaching Tk 16.13 trillion
Bank deposits are experiencing significant growth throughout the country, even as the private sector demonstrates decreased appetite for credit. This is being interpreted as an indication of reduced investment activity.
According to statements from officials and bankers, the liquidity landscape within commercial banks is consistently ameliorating due to favorable deposit growth. However, there is a contrasting decrease in borrowing by businesses.
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As a result of a gradual and steady improvement, there has been a notable decrease in the borrowing from the central bank of the country, Bangladesh Bank (BB), by scheduled banks. This reduction brings some relief to the banks, alleviating a period of liquidity stress that arose due to the sudden withdrawal of funds from the banks’ reserves. This withdrawal was triggered by reports of substantial fraud related to loans.
Q1 2023 Sees Significant Deposit Growth in Scheduled Banks, Urban Deposits Key
Based on the most recent data from BB, the scheduled banks’ total deposit responsibilities, excluding interbank transactions, grew by Tk 250.52 billion or 1.58 percent, reaching Tk 16.13 trillion in the initial quarter (January-March) of the current year.
During the preceding quarter (October-December 2022), there was an augmentation of Tk 116.39 billion in bank deposits, while the January-March 2022 quarter saw a rise of Tk 24.23 billion in increased deposits.
Speaking on condition of anonymity, an official from BB noted that the rise in deposits during the first quarter of the current calendar year can be attributed to a “significant increase in urban deposits”.
Private-sector-credit growth dropped to 10.57 per cent in June compared to the corresponding month last year, according to the central bank statistics.
Urban deposits gone up
Referring to official statistics, the central bank spokesperson indicated that urban deposits surged by Tk192.55 billion within the initial quarter of this year, achieving a total of approximately Tk12.70 trillion. This sum constitutes 78.73 percent of the overall deposit portfolio within the banking sector. Additionally, rural deposits expanded by Tk57.97 billion, reaching Tk3.43 trillion as of March 2023’s conclusion.
Central Bank’s Liquidity Support Leads to Significant Drop in Banks’ Borrowing from BB
Meanwhile, as stated by the BB official, the central bank provided substantial liquidity support to banks throughout the past year, aiding them in overcoming the crisis. This effort yielded evident outcomes: banks’ borrowing from the BB has notably reduced in recent periods.
Based on BB’s records, scheduled banks’ borrowings from the central bank by the end of the reviewed quarter decreased by Tk 82.88 billion or 6.88 percent, reaching Tk 1.12 trillion. In the preceding quarter, this figure stood at Tk 1.20 trillion.
Why did the liquidity situation keep improving?
Mohammad Ali, Managing Director and Chief Executive Officer at Pubali Bank Limited, indicated that the current enhancement in liquidity conditions can be largely credited to the upward trajectory of deposits and a reduction in credit requisitions from the private sector.
Elaborating further, he stated, “During the initial half of this year, our bank witnessed a remarkable upswing in deposit volume, amounting to Tk 60 billion. This surge can be attributed to the resurgence of both individual and institutional depositors visiting our bank branches, encouraged by the more competitive interest rates currently being offered by banks.”
In response to inquiries, Syed Mahbubur Rahman, the Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Limited, conveyed that banks are currently presenting interest rates as high as 8.50 percent. This signifies a discernible demand for deposits from the banks.
He further explained, “While deposits are on an upward trend, there is a reduction in the demand for credit from the private sector. This trend is evidenced by the data published by BB (Bangladesh Bank), which sheds light on the prevailing conditions in the business and industry sectors.”
He emphasized, “This situation points to a deceleration in economic activities, which is an unfavorable indicator for the economy. Inability to expand our credit lending could potentially undermine the banks’ profitability, as this stands as one of our core operations.”
