Banks' Deposits Rise amid Covid-19 Pandemic

Covid-19 has badly affected the livelihood of almost half of the global workforce living in urban and rural areas. Many low- and middle-income group of people of Bangladesh has already lost their jobs and other income sources due to the substantial effect of the Covid-19 pandemic. However, the opposite picture has been seen in bank deposits. At this time huge amounts are being deposited in the banks. Bangladesh Bank says that for the first time at the end of April this year, the amount of deposits in the banking sector has exceeded Tk 13 lakh crore. Never before has such a huge deposit been seen.

In the last one year, the deposits in the banks have increased by about Tk one lakh 60 thousand crore, which is a new record. At this time, the annual growth rate of deposits stood at about 14 percent. In March last year, the annual growth exceeded 14 percent. Deposits are growing so fast at a time when the rate of return on deposits is falling sharply. At present, the bank's interest towards deposits is only 3-4 percent.

Economists have identified four reasons behind the high growth in bank deposits. These include reducing unnecessary costs amid pandemic, focusing on savings, halting new investments, increasing remittances, and imposing restrictions on the purchase of better alternative savings papers.

Former caretaker government's financial adviser. Dr AB Mirza Md Azizul Islam said people are saving as the Coronavirus pandemic has left people with an uncertain future. Therefore, people have reduced unnecessary expenses and focused on saving. Apart from this, one record after another is being logged in the remittances sent by the expatriates during this Pandemic Coronavirus situation. The families of the expatriates are keeping a part of that remittance in the bank. On the other hand, there is stagnation in trade and commerce due to the Covid-19. Many are not daring to go for new investments and businesses for fear of losses. As a result, their capital is also entering the bank as a deposit. Besides, various restrictions have been imposed on the purchase of savings papers, including TIN compulsory. As a result, investors prefer to keep money in the bank to avoid the trouble of TIN.

Bank officials said the expatriates' sending remittance amid Coronavirus is much higher while most of this money has been deposited in the bank. Those who have not saved before, have also started saving in this pandemic time. Employees have also moved away from all kinds of investment and spending plans. In fact, the tendency and amount of savings has increased because Covid-19 has left everyone in uncertainty about the future.

A review of Bangladesh Bank's data shows that Sonali Bank has the highest deposits among state-owned banks. At the end of last December, the number of deposits in this bank stood at Tk 1 lakh 25 thousand 357 crore. The bank's deposits have increased by Tk 9,478 crore in one year. Sonali Bank is followed by Agrani, Janata, and Rupali Bank.

Ataur Rahman Pradhan, managing director of Sonali Bank, said, "I have seen a new picture of deposits in this time. Deposits have increased by about Tk 10,000 crore in one year. People have reduced costs and increased savings. And since there is no new project, not many loans are being granted. '

Islami Bank has the largest deposits in the private sector. At the end of January, the bank's deposits increased by Tk 1.20 lakh crore, which was Tk 1 lakh crore in June last year. During the same period of the 2019-20 financial year, the bank had a deposit of Tk 94,681 crore.

The amount deposited in Pubali Bank is Tk 43,200 crore, which is the second-highest among private banks. After that, First Security Islami Bank has deposits of Tk 43,158 crore and National Bank has deposits of Tk 42,800 crore.

Shafiul Alam Khan Chowdhury, managing director (currently in charge) of Pubali Bank, said, ‘Many businessmen have stopped investing due to the pandemic. And the middle class has not invested anywhere for the fear of financial risk, it has saved money without spending it. Everyone is motivated to save considering the future situation. That's why we got better deposits, more than ever before. "

To boost private investment, interest rates on all types of loans except credit cards were fixed at 9 percent from April 1 last year. Bangladesh Bank issued a circular in this regard on 24 February of the same year. However, Bangladesh Bank refrains from fixing the interest rate on deposits at 6 percent out of concern for the interests of the depositors and weak banks. Because of the interest rate on deposits was fixed at 6 percent, it would be difficult for the depositors to get new deposits and hold the existing ones, just as the depositors were in danger of turning away from the banks.

However, the central bank has not fixed the interest rate on deposits, but the interest rate on loans has been fixed at 9 percent. ABB, an organization the chief executive of the banks, announced about two months ago (February 1) that the interest rate on individual deposits will be fixed at 6 percent. After that announcement, the banks started reducing the interest rates on deposits. In other words, even though the interest rate of the loan is effective from April 1, the interest rate of the deposit is effective 6 percent long ago.

However, before the decision's implementation, the pandemic hit the country. This halted trade and private investment. As a result, interest rates on deposits continue to fall along with interest rates on loans. Even then, bank deposits are increasing.

Syed Mahbubur Rahman, former chairman of the Association of Bankers Bangladesh, an organization of chief executives of private banks, said business was not going well because of Covid-19. New investments have also stalled. As a result, there is no option except to keep money in the bank. Apart from this, people are refraining from many habitual things due to the pandemic. As a result, their cost of living has also come down.

However, analysts say that the financial condition of the entrepreneurs is not so good because of Coronavirus. Many are suffering from a lack of capital. Despite the fact that the surplus liquidity in the bank is gradually increasing, it cannot be called normal. What is the reason for such inflation of surplus liquidity in the banks needs to be investigated.

In this context, the former governor of Bangladesh Bank Dr Atiur Rahman said excess liquidity is detrimental to the banking sector. Such a situation has arisen due to the non-investment of banks in the private sector. In this case, liquidity can be reduced by giving bank loans to small and micro traders at low interest.