Deposits in commercial banks increased by 10.43 per cent year-on-year in February, primarily due to a rise in the banks’ interest rates.
According to Bangladesh Bank data, bank deposits in the country rose to Tk 16,61,649 crore in February, marking an increase from Tk 15,04,767 crore in February 2023.
It was Tk 15,94,584 crore in June 2023.
Term deposits surged from Tk 13.25 lakh crore in February 2023 to Tk 14.71 lakh crore in February 2024.
Demand deposits also increased from Tk 1.79 lakh crore in February 2023 to Tk 1.9 lakh crore in February 2024.
Bankers attributed the continuous increase in deposit rates to attracting many people to keep money in the banks.
Most banks raised their interest rates during this period to attract more deposits, as the banking sector was facing a liquidity shortage. The interest rates ranged from 8 to 11 per cent.
The Bangladesh Bank’s removal of the ceiling on lending and deposit rates allowed the banks to raise deposit rates conveniently.
The central bank discontinued the minimum deposit rate for banks on December 12, 2023, as it had already introduced a market-based lending rate system on the financial market.
In April 2020, the central bank imposed a lending rate cap at 9 per cent and levied the minimum deposit rate in August 2021, which was the average of the three months’ inflation rate.
The BB adopted a new interest rate regime in its June 18, 2023 monetary policy statement, removing the previously imposed 9 per cent lending rate ceiling.
Additionally, Bangladesh received a substantial amount of foreign remittances, which also played a vital role in raising deposits in banks, as remittances create new money.
For the period from July to March in FY24, remittance inflow reached $17.07 billion compared with that of $16 billion in the same period in FY23.
In addition, the government borrowed whopping Tk 98,826 crore from the central bank and Tk 25,296 crore from the country’s commercial banks in FY23.
The surge in borrowing from the central bank led to an increase in money supply on the financial market, bankers said.
The current economic crisis in the country has limited the availability of attractive investment options for individuals, prompting many to opt for the safety of bank deposits, they said.
However, the effect on banks’ deposit balances was not as noticeable due to an ongoing liquidity crisis, bankers said.
They said that this crisis was mainly caused by the central bank’s sale of dollars to banks amid a dollar crisis in the country’s financial sector, which, in turn, absorbed an equivalent amount of the taka from the market.
Over the past 32 months, the central bank sold approximately $30 billion from its foreign exchange reserves.
The gross foreign exchange reserve in Bangladesh, according to International Monetary Fund guidelines, dropped to $19.5 billion on November 15, 2023 from $23.25 billion on August 31, 2023.
