August bank deposits hit hard by inflation, unrest

Infographics: TBS

Bank deposits declined in August compared to the previous month, reaching an 18-month low growth rate of 7.02%.

According to bankers, this decline was driven by the fall of the Awami League government, in the face of nationwide unrest, reports of widespread loan scams, eroding public trust, and runaway inflation.

Bankers added that thanks to various measures taken under the new interim government to restore trust in the banking sector, the trend of depositors withdrawing money decreased in September.

In addition to the decline in deposits, the amount of cash held by the public increased by around Tk804 crore in August, as individuals opted to keep liquid cash amid the prevailing uncertainty.

Selim RF Hussain, managing director of BRAC Bank, told The Business Standard, "July and August were challenging months for our bank accounts, primarily due to a crisis of customer confidence in the banking sector, stemming from various factors, including nationwide unrest. 

"Additionally, the weakening of 9 to 10 banks has contributed to this issue. These factors have collectively led to a decline in deposit growth across the overall banking sector." 

This seasoned banker noted that deposits in the banking sector have begun to increase again since September.

According to data from the central bank, total deposits for August fell to Tk17.31 lakh crore, reflecting a month-on-month decline of 0.16%. Year-on-year, the deposit growth for August stood at 7.02%, the lowest in 18 months, with the previous low of 6.86% recorded in February 2023.

An analysis of central bank data reveals that deposits in the banking sector typically rise each month compared to the previous month. However, deposits decreased in both July and August instead of increasing.

At the end of June this year, total deposits were Tk17.42 lakh crore, indicating a decline of around Tk11,000 crore over the course of two months.

Senior officials from several private banks noted that despite the prevailing situation in the country, deposits in reputable banks have increased significantly. Meanwhile, customers lack confidence in weaker banks, opting instead to keep their funds in more stable institutions.

Abdul Mannan, chairman of First Security Islami Bank, told TBS that banks currently perceived as weak were once strong, and today's strong banks were once weak as well. He emphasised that the banking sector should not be categorised into strong and weak institutions.

Commenting on the decreasing pressure of deposit withdrawals at his bank, the seasoned banker said, "Our board is now very strong, and we have confidence in the skilled personnel working within the bank. Over the past month, we have added 54,000 new accounts."

"Through these accounts, we have received new deposits totalling Tk34 crore. Additionally, we have started recovering our classified loans, managing to recover over Tk515 crore in just one month. We are hopeful about further positive changes in the next two to three weeks."

Central bank data indicate that by the end of August, the amount of cash held outside the banking system reached Tk2.92 lakh crore, an increase of Tk804 crore from July. This figure was Tk2.58 lakh crore at the end of August last year.

Economists have expressed concerns about the rising amount of money held outside the banking system, as it slows down the creation of deposits and loans. They noted that the increasing circulation of cash outside the banks is detrimental to the economy.

A senior official of the central bank stated that people opted to hold on to cash in July due to uncertainty, unrest, and inflation. The country's inflation rate dropped to 10.49% in August from a record 11.66% in July, marking a 1.17 percentage point decline – the largest drop since 2013, according to data from the Bangladesh Bureau of Statistics. The inflation rate further decreased to 9.92% in September.