Bank deposits dropped by 2pc in Feb-April period
Total deposits in scheduled banks during first three months in the current year have dropped by two per cent according to latest statistics. Many believe the new tax proposals on deposit above certain level may further pull down deposits.
The February-April deposits dropped by Tk256 billion toTk12280 from Tk12536 billion in January this year, according to Bangladesh Bank (BB) figures.
Bankers told The Daily Observer that prolonged business disruptions and downward adjustment of interest rate to six per cent led to such decline in banks' deposits. Besides existing deposits are also depleting due to withdrawal rush in the coronavirus pandemic, they observed.
The industry insiders fear the government's decision to raise excise duty by 20 to 25 per cent in various slabs on deposits above Tk1 million in the proposed budget for the next fiscal year may be at fault. It may further discourage depositors which will decelerate deposits in the banking system.
The bankers said deposit shock has come at a time when the banking sector is under multiple pressures of supplying money into the weakening economy. Banks are disbursing high-cost deposits to reduce cost of doing business. The implementation of the single-digit lending rate from April 1, 2020 is narrowing banks' business prospects.
Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh said the coronavirus outbreak in March led to a panic withdrawal of cash from banks. It caused a sharp fall in deposit growth.
BB data shows deposit growth sees a sharp fall of 8 per cent year-on-year in April which was 12.59 per cent in January. The adverse impact of the sharp fall in deposit is already evident as 13 private banks witnessed their advance deposit ratio (ADR) crossed the authorised limit in April.
On April 15 this year, BB raised the ADR limit to 87 per cent from 85 per cent for conventional banks and 92 per cent from 90 per cent for Shariah-based Islamic banks in an effort to boost liquidity amid the Covid-19 pandemic.
In spite of this move, those 13 banks failed to maintain the authorised limit even when banks were lending at the lowest level of 8 percent in April. Several other banks are also very close to the authorised limit due to a fast fall in deposits, central bank data shows.
Syed Mahbubur Rahman, managing director of the Mutual Trust Bank Limited said currently though banks are not facing pressure in lending money as per stimulus package, government borrowing may face setback for deficit financing.
The downward deposits in the banking sector also suggest private sector credit growth is also falling to hit private sector growth.
A senior private sector banker Abdul Mannan said as the pandemic is still going on both domestic and international trade is yet to become normal. Deposit slowdown will thus continue to affect banks losing steam.