Savings encashment up, deposit growth tumbles

Farjana Yeasmin, a private sector employee, has been saving up for a rainy day for ten years, and her fixed deposit receipt (FDR) was set to mature in 2023. Unable to handle the skyrocketing commodity prices triggered by inflation, she had to encash her FDR prematurely.

Another salaryman in Dhaka, Rabiul Islam too had to clean out his term deposit prematurely, after he struggled financially for months. Both Farjana and Rabiul said their salaries no longer cover living expenses, and cashing term deposits is better than asking relatives for money.

Many low and middle income families just like them are bearing the brunt of inflationary pressure, evident by the fact that the deposit growth in banks has slowed to 9.35 per cent in FY22, a significant drop from 13.8 per cent in FY21, show latest data from the central bank.

The deposit growth stood at 10.5 per cent in FY20.

Addressing the matter, Dhaka Bank Managing Director Emranul Huq said, “Small depositors are now withdrawing their money from the banks to cover their living expenses, which has spiraled out of control due to the price hike of essential commodities.

“An increasing number of people are currently unable to save their hard earned money because of the rising inflation.”

Bangladesh’s overall inflation was 7.56 per cent in June, 7.48 per cent in July, 9.5 per cent in August, and 9.1 per cent in September this year. The overall inflation rates recorded in August and September are both eleven-year high figures.

Emranul said investments in the national savings tools have fallen in recent times, which in turn impacted the deposit growth of banks. “Banks are also getting less pay orders now as work on many government projects have been reduced,” he added.

The net sales of National Savings Certificates (NSCs) stood at only Tk 401.20 crore during the July-August period of current FY, down from Tk 5,732.58 crore recorded at the same period last FY, central bank data shows.

Mutual Trust Bank Managing Director Syed Mahbubur Rahman said, “We are not getting deposits even after offering a 6 per cent interest rate. The increasing trend of private sector credit growth and sharp rise in import payments are pushing up the banks’ demand for funds.”

In August, private sector credit grew to 14.07 per cent – which is only 3 percentage points away from 14.10 per cent set by the Bangladesh Bank for FY23.

Many banks have been losing their deposits steadily since the last FY, which have impacted their deposit growth severely. The banking regulator data mentions that eleven state-run, private commercial banks and foreign banks witnessed a negative deposit growth that year.

11 banks see negative deposit growth

At the end of June of this year, state-run Agrani Bank recorded a negative 3.02 per cent deposit growth, and Sonali Bank (Islamic banking window) posted a 9.18 per cent negative deposit growth.

Private commercial AB Bank (Islamic banking window) witnessed negative 4.41 per cent deposit growth, which was negative 3.88 per cent for ICB Islamic Bank, and negative 0.86 per cent for Jamuna Bank (Islamic banking window).

Prime Bank’s (Islamic banking window) deposit growth was negative 1.25 per cent, which was negative 2.11 per cent at Standard Bank, negative 0.19 percent Uttara Bank, and negative 15.44 per cent at HSBC (Islamic banking window).

Besides, negative deposit growth of National Bank of Pakistan stood at 0.12 per cent and Standard Chartered bank at 3.10 per cent, show central bank data.

‘Interest cap certainly impacted deposit growth’

A number of bankers claimed that the interest rate cap has impacted the deposit growth of banks because this ceiling is preventing them from increasing deposit rates.

A senior official, working at a reputed private commercial bank, said, “We have to maintain a spread between deposit and lending rate, and the banks’ maximum lending rate has been set to 9 per cent. How can we boost the deposit rate under such conditions?”

In August, the weighted average deposit rate stood at 4.07 per cent, while most of the banks offer depositors interest rates between 3 per cent and 5.50 per cent.

A former chairman of the Association of Bankers, Bangladesh (ABB) and former managing director of Meghna Bank Mohammed Nurul Amin said, “The interest rate cap has certainly impacted the deposit growth of banks.

“Besides, various fees and charges imposed by banks were already discouraging depositors. The inflation is now eating away the returns, while hidden charges imposed by banks further impacted the deposited money.”

Public bearing the brunt of inflation

Nurul Amin said, “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 others.

“The country’s economic situation is currently not very good.”

Former director general of Bangladesh Institute of Development Studies (BIDS) Mustafa K Mujeri 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.”