Bank deposits soar amid sluggish credit growth

Anisul Islam Noor

1 February, 2021 12:00 AM printer

Despite flexible interest rates, lending has failed to gain momentum in the current fiscal year amid the corona pandemic, causing a pile-up of cash in banks.

Lenders are in an uncomfortable situation as they cannot utilize the funds due to sluggish demand from borrowers.

Banks have said they have to provide interest to depositors regularly, but the scope of lending has squeezed in absence of vibrant economic activities.

Banks’ income mainly depends on lending, so the upward trend in deposits is piling pressure on them. But the demand for loans will go up once the economic impact of the coronavirus pandemic is overcome, they said.

The bank deposit (demand deposit and time deposit) stood at Tk 12,680 billion in November 2020, which was Tk 11,194 billion in 2019. It means the deposit volume has soared by 13.27 per cent in a year.

A Bangladesh Bank (BB) report shows that broad money increased by 14.10 per cent year-on-year in October 2020. Net domestic assets and net foreign asset jumped by 11.22 per cent and 24.67 per cent respectively in October 2020.

Domestic credit growth marked a rise of Tk 1365.22 billion or 11.38 per cent at the end of October 2020. The growth was Tk 1512.20 billion or 14.43 per cent at the end of October 2019.

Credit to the private sector and public sector marked an 8.61 per cent and 27.76 per cent growth respectively in October 2020 as compared to the same of the previous year.

Fund disbursement from the stimulus packages in response to the pandemic-induced economic slowdown helped the credit growth pick up slightly despite a lower demand from the private sector.

Md Arfan Ali, managing director of Bank Asia, said money injection into the banking industry has been on the rise because of the stimulus packages and the robust growth of remittances in recent months.

“The central bank purchases dollar regularly from banks in the wake of falling imports, injecting a large amount of liquidity into the banking industry,” he said.

“Such a trend will not bring any positive impact for banks as it usually puts an adverse effect on their profitability,” Arfan Ali said.

"Banks are trying to sustain their regular operations at this moment," he added.

“The entrepreneurs are reluctant to borrow for new projects as they are trying to navigate the crisis,” Arfan Ali noted, adding that the situation will improve at home and abroad when the Coviod-19 vaccination programme starts to ease the pandemic.

Arfan Ali expressed hope that the nationwide vaccination programme will also help improve the lending situation in the country.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the interest cost of banks is increasing because of the lower credit demand.

Demand for retail loans is falling, and the middle and lower-middle income groups are struggling to cope with the financial impact of the pandemic, Rahman said.