Bank deposit growth lowest in 11 years

Deposits in the country's banking sector grew at their slowest rate in 11 years in 2022, but the growth in loan disbursements increased significantly.

According to the central bank's financial stability report, deposits in banks grew by only 5.7% in 2022, which is nearly half of the 10% growth registered in the previous year.

The deposit growth was 16.08% in 2013 and 20.2% in the preceding year.

Industry insiders say the business landscape of the country underwent a transformation due to Covid. Imports experienced a significant decline during the pandemic but began to recover in 2021. As a result, businesses required substantial bank loans, which led to a significant increase in loan growth.

According to the report, banks did not face a shortage of deposits to meet loan demand, even though the gap between deposits and loans got slightly narrower during the review year. The growth in loans exceeded that of deposits in 2022.

Total loans and advances amounted to Tk15.03 lakh crore, marking an annual growth of 13.5%, while total deposits reached Tk16.03 lakh crore, with a growth rate of 5.6%. The higher loan growth might entail stress in the liquidity management of banks in the future, it added.

A high official at the central bank said the biggest factor behind the decline in the growth of central deposits has been the decline in people's savings due to inflation.

Along with this, at the end of 2022, information about large amounts of irregular loans from Sharia-based banks was published in the media, he added.

The official said during this time, there is a tendency among customers to withdraw their deposits. As a result, deposits are reduced at an unusual rate in these banks. Besides, liquidity crises occurred at those banks. Although the central bank has tried to provide support using various tools, the banks have not yet fully recovered from the crisis.

According to the report, state-owned and private banks had lower deposit growth but experienced high growth in loans and advances. On the contrary, foreign banks experienced significant growth in deposits, yet they exercised caution when it came to lending, which is evident from the negative growth observed in loans and advances.

Term deposits constituted almost half of the total deposits. Its share slightly decreased, to 45.9% in 2022 from 48.5% in 2021. Shares of current deposits, savings deposits, and other deposits were 22.2%, 23.8%, and 8.2%, respectively. A higher proportion of term deposits provided banks with a more stable source of funding, thereby promoting funding stability for the banks.

The top five banks possessed 32.7% of aggregate deposits, whereas 46.4% of deposits were concentrated in 10 banks. Four state-owned banks and one private bank were listed as the top five in terms of deposit holdings. Concentrations of deposits in the top five banks and top 10 banks were 34.2% and 48.2%, respectively, in the previous year.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, told TBS that inflation is a major factor behind the decline in deposit growth.

"As people's spending increases, they are keeping more money in their hands than depositing it in banks. As a result, this has affected the growth of deposits," he added.

When asked which section of society has been affected by inflation, he said, the savings of the poor in the country are very low. They spend their daily income.

"A large part of our deposits come from the middle and upper classes. Inflation has had a major impact on the savings of the middle class. They are not able to save much to meet the cost of living," he added.

The eminent economist said, however, that the impact of inflation is not supposed to fall on the living standards of the upper class; the majority of the country's deposits belong to this group. Hence, it is difficult to say the reason for the overall drop in deposits.

Ahsan H Mansur, executive director at the Policy Research Institute, told TBS that people are buying flats or land instead of making deposits in the banking sector because they have lost confidence in it.

"This has caused the price of flats and land to go up significantly since the pandemic. When black money increases in an economy, it is often invested in these sectors," he added.

The noted economist cited the increasing deficit in the balance of payments, money laundering, and the dollar crisis as reasons for the decrease in deposits in the banking sector.

"A lot of money is being laundered out of the country, which is causing the reserves to decrease. This, in turn, is leading to a decrease in deposits," he added.