Bank deposits grow 6.14% YoY in January 

Deposits in the country's banking sector grew by 6.14% year-on-year in January compared to 5.44% in the previous month.

At the same time, lending grew by 7 basis points. The year-on-year growth of loans in January was 13.89%, compared to 13.82% in December last year.

According to data from the central bank, deposits in the banking sector have increased by Tk86,000 crore in one year through January, while lending has increased by Tk1.72 lakh crore. In other words, deposits have not increased at the same pace as bank loans have.

A month-wise analysis showed that in January, banks lent out more money than they received in deposits, which economists say could potentially lead to a liquidity crunch if not managed carefully.

According to data from the Bangladesh Bank, deposits in the country's banking sector fell by Tk1,398 crore in January compared to the previous month.

The total deposits in the banking channel at the end of January stood at Tk14.88 lakh crore, down from Tk14.89 lakh crore in December.

Banks have increased lending despite a decline in deposits. Credit rose by Tk8,451 crore to Tk17.67 lakh crore at the end of January compared to the previous month.

According to the Bangladesh Bank, deposits in the banking system increased by Tk2,281 crore in December, while loans rose by Tk22,930 crore. That is, in the two months through January, the growth in loans has been higher than the deposits in the banking sector, and as a result, many banks are expected to fall into a liquidity crisis. However, this crisis is somewhat lessened for the time being as the central bank pumps money into the money market using various tools, including repo.

Industry insiders say that when deposits decrease against the increase in loans, it is natural that it will reduce excess liquidity in the money market.

The central bank data shows the excess liquidity in the banking sector dropped by Tk8,128 crore to Tk1.38 lakh crore in January compared to the previous month. 

In February of this year, inflation in the country was 8.78%. But new savings have fallen as consumers' earnings have not increased. Many are breaking old savings for spending. Economists have commented that this is one of the reasons for the decrease in deposits in bank channels.

Selim RF Hussain, chairman of the Association of Bankers, Bangladesh (ABB), agreed with this idea and told TBS, "Deposits have decreased mainly due to inflation. Especially those who are employed or whose income is fixed, they are more victims."

Most banks raised deposit interest rates in January

Most of the banks increased the deposit interest rate in January. The lending interest has also increased, but it is at a lower rate than that of deposits. As a result, interest income for banks has decreased compared to December.

Private sector South Bengal Agriculture and Commerce Bank paid 8% interest on time deposits in January, compared to 7.5% in December. Exim Bank raised its interest rate to 7.5% from 7% in January, and Al-Arafah Islami Bank raised it to 6.25% from 5.75%. AB Bank is offering 7.25% on time deposits, up from 6.75% earlier.

According to central bank data, the average interest rate on bank deposits rose to 4.29% in January from 4.23% in December. The rate was 4.01% in January of the previous year. The average interest rate on loans rose by 2 basis points to 7.24% from that of December. This has affected the interest income of banks. The yield fell to 2.95% in January, down from 2.99% in the previous month.

On 15 January, the central bank allowed the deposit interest rate cap of 6% to be withdrawn and the interest rate on consumer loans to be increased by 3%. Mainly after that, banks increase the interest rate to raise their deposits.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, said, "People's income growth is less than inflation. Real income has fallen and consumption has risen, resulting in lower savings."

"Deposits will not increase even if the interest rate is raised when income drops. But there was good growth in loans. It shows a mismatch. At this stage, we have to make the lending rate flexible as well as stop irregularities and corruption in the banking sector," he added.