Bank deposit growth has remained under 8% for four straight months

Deposit growth in the banking sector has stayed below 8% for the last four months of the outgoing year, with bankers attributing this trend to high inflation and reduced liquidity.

According to updated data from Bangladesh Bank released on Thursday, deposit growth in December was 7.44%. 

In September 2024, it was 7.26%, and slightly increased to 7.28% in October. The growth peaked at 7.46% in November but fell again in December. The last time deposit growth was in this range was in February 2023, when it was 6.86%.

The Awami League government collapsed due to a mass movement from July to August last year. Prior to that, the economy had been facing several challenges, including a shortage of dollars, declining reserves, and lower remittances. The interim government has introduced various measures to stabilize the economy following the political transition, but bank deposit growth has yet to recover.

In August 2024, despite widespread violence and unrest, the central bank reported a 9.50% growth in bank deposits, coinciding with the fall of the Awami League government. Before that, the most recent time deposit growth fell below 10% was in October 2023, when it stood at 9.80%.

Bangladesh Bank data shows that deposits in the banking sector reached around Tk 17.77 trillion in December 2024, compared to about Tk 16.54 trillion in December 2023. A senior official at Bangladesh Bank noted that bank deposit growth should ideally remain above 10%, and in a country like Bangladesh, it should be between 12-14%.

Mohammad Masum, managing director of Citizens Bank, cited three key reasons for the decline in deposit growth.

"People typically deposit leftover money at the end of the month, but due to high inflation, people's expenses have risen, and there's no extra money available after covering household costs."

According to Bangladesh Bureau of Statistics data, overall inflation was 10.89% in December 2024. This means a basket of goods that cost Tk 100 in December 2023 now costs an average of Tk 110.89. In December 2023, the inflation rate was 9.41%.

After securing a fourth consecutive term in early 2024, the Awami League worked with ministries such as fisheries, agriculture, food, commerce, and finance to control inflation, but these efforts were unsuccessful. Inflation remained above 9% until July 2024, when it peaked at 11.66%, just as the political movement against the government reached its peak. It decreased slightly to 10.49% in August.

By the time September’s inflation figures were released, the Awami League government had fallen and an interim government took office. In September, inflation dropped to 9.92%, but rose above 10% again in October.

The chief advisor of the interim government announced plans to control inflation right after assuming office, with interest rates being raised to curb the money supply. However, these measures did not lead to visible benefits in the market for everyday goods.

Irregularities and corruption within the financial sector were also widely discussed during the Sheikh Hasina government's tenure. 

Masum also mentioned a lack of confidence in the banking sector, noting that eight to nine banks were facing liquidity crises. Customers of these banks were unable to withdraw their money when needed, resulting in a decline in deposits. 

"Public anxiety surrounding the banks has led many people to withdraw their savings. They are choosing not to save their money in banks for the time being," Masum said.

He also pointed out the high returns on treasury bills and bonds as another factor contributing to the decline in deposits.

"Interest rates in that sector are around 12%. As a result, both individuals and institutions have increased their investments in treasury bills and bonds, diverting savings from the banks."