Customers lined up in long queues at bank counters to withdraw cash on Thursday, the last working day before the start of the Eid-ul-Azha holiday.
Bank officials noted that with the second-largest religious festival for Muslims in mind, the demand for cash withdrawals had increased over the past three to four days, leading to significant withdrawal pressure on banks and a liquidity crisis for some.
They mentioned that on Thursday, bank transactions saw a 30 per cent increase compared to regular working days. This surge in withdrawals is typical around religious festivals like Eid, as people need cash for celebrations, purchases, and other expenses.
As for banks, the average call money rate—the overnight interest rate at which banks borrow from one another—stood at 9.18 per cent on Thursday, slightly down from 9.39 per cent on Wednesday.
Despite the slight decrease, this rate remains high, reflecting the ongoing tight liquidity situation that banks are facing.
According to Bangladesh Bank data, banks borrowed Tk 2,024.55 crore from the call money market on Thursday. On Wednesday, the figure was Tk 4,608.76 crore.
Market insiders believe that there are several reasons behind the increase in the call money rate.
Banks have been facing a liquidity crisis for a while, leading them to borrow money from each other overnight.
Additionally, deposit growth in the banking sector has decreased despite high-interest rates being offered.
Deposit growth stood at 8.63 per cent in April, down from 9.99 per cent in the same month of the previous year.
Moreover, a managing director of a private bank, speaking on condition of anonymity, told The Business Post that influential individuals had borrowed money from banks and failed to repay it, further exacerbating the liquidity crisis.
Another official of a private bank, who preferred to remain anonymous, said that the pressure to withdraw cash has increased due to Eid-ul-Azha. "We are borrowing money from other banks to pay our customers," he explained.
The call money rate stood at 9.57 per cent in January 2024, the highest average rate in 12 years. The rate had previously soared to 12.82 per cent in 2012.
Economists have stated that the high inflation rate is causing deposit withdrawals from the banking sector. Additionally, the government has imposed a tax on deposits, which is detrimental to the economy. As a result, depositors are losing interest in investing in the banking sector due to a lack of trust and the tax on deposits.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), said, "It is normal for the call money rate to increase before Eid, as the demand for cash rises. However, the current liquidity crisis in the banking sector is concerning and not favourable for the economy. The banking sector has been experiencing a liquidity crunch throughout the year."
