Bank deposits rise despite low returns
Deposits at banks saw remarkable growth last fiscal year as the coronavirus-linked uncertainty compelled people to cut non-essential expenses and save more, while lending growth shrank slightly due to business slowdown.
Deposits totalled Tk 1,485,601 crore in fiscal 2020-21, up 13.8 per cent from a year ago, according to data from Bangladesh Bank.
The deposit growth, however, stood at 10.5 per cent in FY20.
Last fiscal year, lending growth decelerated to 8.48 per cent from 8.95 per cent a year ago. Banks disbursed Tk 1,154,955 crore in loans in FY21.
Mirza Elias Uddin Ahmed, managing director of Jamuna Bank, credited the robust remittance growth and higher export earnings for the expanding deposit base.
The inflow of foreign loans increased throughout the last fiscal year, contributing to the ballooning of the deposits.
"But businesses adopted a go-slow policy when it came to expanding operations, so banks faced a lower credit growth than usual period," Ahmed said.
The loan-deposit ratio stood at 71.55 per cent last fiscal year in contrast to 76.22 per cent a year earlier, comfortably within the regulatory ceiling.
Conventional banks are allowed to keep the loan-deposit ratio at 87 per cent and Shariah-based banks at 92 per cent.
But the declining trend of the loan-deposit ratio indicates that banks are facing difficulty in ensuring adequate profits.
The net profit of banks stood at Tk 5,278 crore in 2020, down 31 per cent from a year earlier.
Banks managed to stop the downward trend of profits in the first half of 2021 by cutting the interest rate on deposits, which allowed them to earn sizeable amounts.
The weighted average rate on deposits stood at 4.13 per cent in June, down from 5.06 per cent a year ago, BB data showed.
The lower deposit rate, which are below the inflation rate, led the central bank to seek an explanation from 10 banks last month.
Ahmed said the grim situation in the banking sector had started to wither as the country was tackling the second wave of coronavirus infections moderately successfully.
The government has recently reopened the economy, helping the banking industry turn around, he said.
"A good number of entrepreneurs have recently submitted project proposals to us to receive loans. This is a good sign for us."
The excess liquidity has started declining soon after the BB commenced mopping up surplus funds from the banking system.
"The indicators of the financial sector have given a ray of hope that the banking sector will soon return to the prosperity that it had enjoyed before the pandemic," Ahmed said.
Md Arfan Ali, managing director of Bank Asia, said the deposit growth in the last fiscal year was not unusual as the banking industry usually enjoyed 2-3 per cent growth per year.
However, the declining lending growth was not a regular phenomenon, he said, adding that the credit demand had picked up in the last couple of months.
"The demand for both taka and the US dollar has recently increased to a large extent. As a result, the banking industry will be able to recover from the ongoing slowdown quickly."
Among all lenders, Islami Bank Bangladesh disbursed the highest amount, at Tk 100,400 crore in FY21.
Sonali Bank secured the top position when it comes to deposit mobilisation, collecting Tk 132,798 crore.