Home ›› 03 Aug 2022 ›› Front
The encashment of savings certificates rose sharply by 25.52 per cent to Tk 88,155 crore in FY22, as people – mostly from the middle income segment – withdrew money to meet the increased living costs triggered by soaring inflation.
The encashment amount of savings certificates was Tk 70,229 crore in FY21, shows data from the Bangladesh Bank.
Meanwhile, fixed or time deposits in the banking sector witnessed a drastic fall by 35 per cent to Tk 82,709 crore in the July-May period of FY22, compared to Tk 1,27,000 crore in the same period in last FY.
Speaking to The Business Post, bankers from a number of branches said the deposits have decreased in the first seven months (January-July) of 2022, when compared to the same period last year.
Managing Director and CEO of Mutual Trust Bank Syed Mahbubur Rahman said, “People are consuming their savings mainly due to the increase in living costs, which is why time and other deposits are decreasing.”
Apart from this, deposits also decreased due to the real interest rate actually being negative compared to the inflation rate. People also did not invest their deposits in savings certificates, evident by the decline in net NSC sales last FY.
President and Managing Director of Bank Asia Md Arfan Ali said, “The decreases in deposits and savings certificates indicate that savers are under the pressure of inflation, and they are encashing their savings to afford the cost of living.
Economists blamed the dip in people’s savings on the rising living costs triggered by soaring inflation, which came as a ripple effect of the Covid-19 pandemic shock and the ongoing war between Russia and Ukraine.
Distinguished Fellow of the Centre for Policy Dialogue (CPD) Prof Mustafizur Rahman said, “Inflationary pressure has increased the cost of living, which has influenced savers to withdraw investment from national savings certificates (NSCs).
“This has impacted the term deposits in banks too.”
NSC sales decline as well
The amount of NSC sales dropped by more than half and stood at Tk 19,916 crore in the just concluded FY22, compared to Tk 41,960 crore recorded in FY21.
To meet the budget deficit, the net sales target of NSC for FY21 was Tk 30,032 crore. It was Tk 32,000 crore in FY22, and Tk 35,000 crore in the ongoing FY23.
Policy Research Institute’s (PRI) Executive Director Ahsan H Mansur said, “The government’s restrictions played the key role in decreasing the sale of national savings certificates, rather than the inflationary pressure.
“It is good for the government as interest expenses will also come down.”
In the previous FY, the government spent Tk 40,002 crore for interest payment of savings certificates, while the amount was Tk 33,797 crore in FY21.
The government has been discouraging the investment on savings certificates for the past few years due to high interest payment. As part of this measure, the investment limit has been fixed at Tk 1 crore.
Besides, to make an investment in NSC worth more than Tk 5 lakh, a person will have to submit an income tax return certificate from the ongoing FY, even though there is a provision of filing TIN number earlier.
A person could also face imprisonment or fines if he/she purchases NSCs violating government rules. Economists believe that the sale of NSCs is dropping due to these factors.
Fixed deposits dip in banks
The decline in savings has also affected bank deposits. Central bank data shows that in the first eleven months (July-May) of the last fiscal year, the amount of term deposits has decreased by more than 35 per cent compared to the same period of FY21.
In the July-May period of FY21, the amount in time deposits was Tk 1,27,000 crore, which decreased to Tk 82,709 crore in the same period of FY22.
CPD’s Prof Mustafizur Rahman said, “These figures show that the people are unable to save as the cost of living is increasing. We are overspending. I think that the low interest rates have also affected the bank deposits.”
According to the central bank, the average interest rate on bank deposits is currently 4 per cent, although the bankers claim this rate has gone up to 6 per cent. Meanwhile, the average interest rate of national savings certificates is slightly above 11 per cent. “The real interest rates are currently negative compared to bank deposit rates. Meanwhile, the interest rate of NSC is too high. If the actual inflation rate is found, it would be more than the interest rate of the savings certificate,” Prof Mustafiz said.
After the Russia-Ukraine war began, Bangladesh’s economy began feeling the inflationary pressure in April this year. The inflation rate was 5.56 per cent in that month and it rose to 7.56 per cent in June.
However, a number of experts did not agree with the rate calculated by government organisation Bangladesh Bureau of Statistics.
In its recent analysis of the prices of 11 essential consumer goods, the think tank CPD showed that the average inflation rate of the goods was over 29 per cent in July.
