Bank deposits fall Tk8,200 crore in July amid internet blackouts, unrest

Bangladesh's banking sector experienced a significant decline in deposits in July, falling by Tk8,200 crore, mainly due to a 5-day internet blackout, three days of bank closures, and a general slowdown in banking activity due to unrest in the country.

Along with the fall in deposits, the amount of cash held by the public increased by approximately Tk1,200 crore in July, as people preferred to keep liquid cash amid uncertainty.

According to data from the central bank, July's total deposits fell to Tk17.42 lakh crore, reflecting a negative month-on-month growth of 0.47%. Year-on-year, the deposit growth for July stood at 7.91%, the lowest in 16 months, with the previous low of 7.53% recorded in March 2023.

When asked about the low deposit growth, Sohail RK Hussain, managing director of Bank Asia, told The Business Standard, "While deposits in our bank [Bank Asia] grew in July, the overall banking sector saw a decline. 

"This was mainly due to the prevailing unrest, internet blockage, and the extended bank closures. Additionally, negative news about loans being taken out irregularly from several banks led to a lack of trust among customers." 

"While transfers between accounts were possible during July, deposits did not increase as expected, and the return of funds to the banking system was slower than usual," he further explained.

However, he pointed out that the situation began improving in August and September. He further emphasised the need to focus on restoring customer confidence in the banking sector.

"We are seeing some positive signals, such as an increase in remittances. Also, the return of Tk30,000 crore to the banking channel in a month, as told by the Bangladesh Bank Governor Ahsan H Mansur last Sunday, is a positive sign. We hope the situation will gradually normalise," he added.

Regarding the increased cash held by the public, Mohammad Ali, chief executive officer and managing director of Pubali Bank, told The Business Standard, "Due to people withdrawing deposits in July, the amount of currency outside banks has increased slightly. However, strong banks are still receiving healthy deposits."

"Political stability is essential for the banking sector to return to normal," he added.

Central bank data states that by the end of July, the amount of cash held outside the banking system reached Tk2.92 lakh crore, an increase of Tk1,200 crore from June. The figure was Tk2.66 lakh crore at the end of July 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 said the increasing amount of money circulating outside the banks is not good for the economy.

A senior official from the central bank said people chose to hold on to cash in July due to uncertainty, unrest, and inflation. However, since the new government was formed in August, the situation has started to change.

The country's inflation dropped to 10.49% in August from the record 11.66% in July, marking a 1.17 percentage point decline – the largest decline since 2013, according to data from the Bangladesh Bureau of Statistics.