Rabeya Islam, a private sector employee, has been saving up for a rainy day for the past five years and her fixed deposit receipt (FDR) was set to mature in 2024.
However, unable to handle the skyrocketing commodity prices triggered by rising inflation, she recently had to encash her FDR prematurely.
Another salaryman Sohel Rana too had to clean out his term deposit prematurely after he struggled financially in recent months.
Talking to The Business Post, both of them said that their salaries no longer cover the living expenses, and encashing the term deposit is better than asking relatives for money.
Like them, almost all the low and middle-income families across the country are now bearing the brunt of inflationary pressure, which reflects on the trend of banks’ deposit growth.
At the end of December last year, the deposit growth rate stood at 5.44 per cent, down from 9.19 per cent in the same month of 2021, according to the latest Bangladesh Bank data.
The deposit growth was at 13.48 per cent in December 2020 and 12.58 per cent in December 2019. Not only bank deposits, but savers have also been pulling out their funds from savings certificates.
The net sales of national saving certificates (NSC) remained negative for four consecutive months until December last year, meaning more and more savers encashed invested funds instead of reinvestment.
NSC sales were Tk 1,490 crore negative in December last year, as per BB data. Dhaka Bank Managing Director (MD) and CEO Emranul Huq said small depositors are now withdrawing money from the banks to cover their living expenses.
People are currently unable to save their money because of rising inflation.
The inflation rate stood at 8.57 per cent in January this year. However, the government aims to keep the rate within 7.5 per cent in this fiscal year.
16 banks registered negative deposit growth
At the end of December 2022, 16 banks registered negative deposit growth as savers withdrew their funds instead of saving.
Of them, state-run Agrani Bank’s negative deposit growth was at 6.94 per cent; BASIC Bank at 1.22 per cent; Bangladesh Commerce Bank at 6.05 per cent; and First Security Islami Bank at 5.30 per cent.
ICB Islamic Bank registered 7.26 per cent negative deposit growth; National Bank 8.98 per cent; One Bank 1.77 per cent; and Southeast Bank 3.86 per cent, as per the central bank data.
Impact on banks’ lending capacity
Industry insiders have said that banks’ lending capacity has gotten negatively impacted due to the slow deposit growth.
“When we are collecting deposits at more than 7 per cent interest rate and there is a cost of defaulted loans and provisioning, how can we disburse loans at a 9 per cent lending rate?” asked Meghna Bank MD and CEO Sohail RK Hussain.
Due to the same reason, an increasing number of banks are now unable to disburse fresh loans, he added.
A senior BB official told The Business Post that most banks are now adopting a go-slow strategy to disburse fresh loans while some have stopped new client bookings to avoid risks.
Last year, nine banks also registered negative credit growth while most banks’ credit growth did not rise.
Currency outside banks on the rise
Meanwhile, the amount of currency or money outside the country’s banking sector has risen in recent months.
At the end of December last year, currency outside the banks hit an all-time high of Tk 2,68,181 crore, up from Tk 2,52,000 crore a month ago, as per the latest BB data.
Industry insiders said that depositors now are holding more cash in their hands due to inflationary pressure, rising living costs and loan irregularity incidents in the banking sector.
Recently, some Islamic banks faced huge cash withdrawal pressure when their loan irregularities came to light.
Public suffering
Nurul Amin, former president of the Association of Bankers, Bangladesh, told The Business Post, “Middle and higher-middle-class people now have no alternatives but to encash their term deposits to cover living expenses.
“Meanwhile, low-income people are now covering their daily expenses by borrowing from banks and other sources. The country’s economic situation is currently not very good.”
Mustafa K Mujeri, former director general of the Bangladesh Institute of Development Studies, said, “The low-income people face significant financial difficulties when their purchasing power declines due to inflationary pressure.
“Since they spend a large portion of their income on food, their calorie intake falls when food inflation is high. In this situation, women and children of these families suffer from malnutrition.”
