Bank deposits surge despite lower interest rate

January 07, 2021 09:30:20

| Updated:

January 07, 2021 10:12:07

The deposit growth in the country’s banking sector increased by a record 13 per cent to approximately Tk 12.5 trillion in October last year, even as interest rate is at historic low, the central bank data shows.

The latest data of the Bangladesh Bank said time deposit expanded to over Tk 11.1 trillion in October, while the demand deposit to Tk 1.3 trillion.

The deposit growth was registered in October, 2019 was 12.2 per cent.

This surge took place at a time when the interest rate on deposits remained significantly low after the government’s implementation of single-digit interest rate.

Bankers said that this rise is due to the adequate liquidity in the money market, driven by stimulus packages.

They said this may facilitate lending, although the demand for lending remained poor as the fallout of COVID-19, which has been hitting the economy since March 2020.

Syed Mahbubur Rahman, managing director and CEO at the privately-owned Mutual Trust Bank, said the formal channel money transfer has boosted in recent times, especially remittances.

“To my mind, the rise is due to the inflow of remittances as many now prefer to send money through the formal channel,” he told the FE

Mr. Rahman also said the people are now hoarding money to combat the future uncertainty as the pandemic continues to ravage the country as elsewhere in the world.

“People are saving for the treatment fearing they will contract the virus and face uncertainty in the future,” he added.

Meanwhile, the interest on the fixed deposit ranges from 4.0 to 5.0 per cent while the savings interest rate is between 2.0 to 3.0 per cent.

Ahmed Shaheen, a deputy managing director with Eastern Bank Limited, told the FE that people have limited choice to save money– either in banks or at home.

“I think most people prefer banks considering the security of their wealth,” he said.

He said the interest rate on deposits is low, but the security or trust on the banking sector is high.

Mr. Shaheen said the growth in the fixed deposit remained almost the same as its previous level, but there were surges in the demand deposits.

He said the reason is that many customers deposited the money in the savings accounts after maturity of fixed deposits as many of the customers remained indecisive as to whether they will be able deposit the same again in the FDR or not.

He said many customers are avoiding the purchase of luxury goods and foreign travels as a result of the coronavirus leading to the rise in the banking deposits.

On the other hand, economists argued that this type of surge in the banking system is due to the stimulus package as the central bank has been implementing many strategies for boosting liquidity in the money market.

They said this may cause inflationary pressure in the economy.

Dr. Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh, told the FE: “Initially, it may raise prices of real assets.”

He said the recent bullishness of the capital market is also due to the growth in such deposits.

He feared that ultimately, it would flare up the inflationary pressures in the economy.

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