Money flowing back into banks, Tk1,085cr in Dec alone

After increasing for ten consecutive months, money outside banks – often referred to as "mattress money" – has started flowing back into the banking system over the past four months, albeit at a slow pace, with Tk1,085 crore deposited in December alone.

According to the central bank, money outside banks decreased from Tk2.77 lakh crore in November to Tk2.76 lakh crore in December, but it still represents an 8.44% increase compared to December 2023, when it was Tk2.55 lakh crore, marking an increase of about Tk21,000 crore over the year. 

Economists say an increase in money outside banks harms the economy, as it reduces money circulation and ultimately hinders money creation. When a significant amount of money returns to the banking system, it improves bank liquidity and, by increasing loanable funds, fosters greater investment in the country.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard, "As people's confidence in the banking sector returns and good governance improves, the amount of money outside banks has been decreasing in recent months, which is a positive sign for the economy. 

"However, while it surged at the end of 2023 and the beginning of 2024, it is now returning to banks at a slower rate."

Analysis of central bank data shows that the amount of money outside the banks was Tk2.46 lakh crore in October 2023. Due to inflationary pressures, it increased every month, reaching a peak of Tk2.92 lakh crore by the end of July. 

However, factors such as internet outages and the assumption of office by the interim government after the fall of the Awami League government slowed the growth in that month. The money outside the banking sector started returning from September.

Due to persistent inflationary pressures, deposit growth in the banking sector has not met expectations. While the growth rate slightly increased for three consecutive months, it decreased in December compared to the previous month.

According to central bank data, deposits in the banking sector reached Tk17.77 lakh crore in December, a 7.44% increase compared to the same month the previous year, when deposits stood at Tk16.54 lakh crore.

Last August, deposit growth was the lowest in 18 months at 7.02%. The situation improved slightly from September, with a deposit increase of Tk14,208 crore and a growth rate of 7.26%. 

In October, deposit growth rose to 7.28%, reaching Tk17.55 lakh crore. This growth rate further increased to 7.46% in November.

Senior bank officials attributed the low deposit growth to customers' lack of confidence following revelations of irregular loans in the banking sector and fears over weak banks failing to return deposits. 

Since August, when Ahsan H Mansur took over as the new central bank governor, several measures have been implemented, including restructuring the boards of 11 banks, providing liquidity support, and addressing anonymous loan issues.

While the condition of weak banks has not significantly improved, these steps have prevented further deterioration. The governor also reported improvements in Islamic and UCB banks, and as customer confidence in stable banks has grown, deposits in these banks have increased.

Commenting on Mutual Trust Bank Limited's deposit growth of around 14% in 2024, Syed Mahbubur Rahman said, "Good banks are attracting deposits at a higher rate than the industry average, while weak banks are struggling to do so. Even with higher deposit interest rates, the overall industry deposit growth remains modest, partly due to ongoing inflation. 

"While official inflation is reported at around 10%, I believe it is higher. Over the past two years, income growth has not kept pace with inflation, leading many customers to withdraw deposited funds to cover additional expenses."