Deposits in banks are increasing and money outside the banking sector has decreased by Tk 45,000 crore in recent times, reflecting growing confidence in the banking sector, according to Bangladesh Bank (BB) Governor Ahsan H Mansur.
"The good thing is that some money is coming back [into the banking sector]. Now we can assure customers that they will get their money back," he said at a roundtable discussion in the capital last month.
Mansur, a former economist at the International Monetary Fund (IMF), took charge of the central bank in mid-August after former governor Abdur Rouf Talukder resigned following the previous government's ouster on August 5.
In recent weeks, customers have rushed to the branches of cash-strapped banks in a bid to withdraw funds.
However, the Bangladesh Bank governor requested depositors not to withdraw all their money.
"Withdraw as much as you need, but give us some time. We hope the banks will turn around," he said.
Mansur also expressed hope that the distressed banks would overcome the situation as their boards had been reconstituted.
"The quality of the banks will improve as their management will change soon," he said.
"Every bank will be audited. If needed, we will go for mergers and acquisitions of ailing banks," Mansur added.
Around Tk 290,000 crore is outside the banking sector at present, which would go a long way to improving the situation of cash-strapped banks.
Some remedies
The key issue for the sector is restoring depositor confidence, which has been impacted by broader market conditions and weak governance. However, it’s important to recognize that the financial health of NBFIs varies, and not all institutions are under stress, said M Jamal Uddin, managing director & CEO, IDLC Finance PLC.
“Leading institutions like IDLC, with a solid governance framework and transparent practices, are well-positioned to manage risks, meet their obligations, and continue to serve clients efficiently. As a result, we are seeing demand shift towards these well-governed institutions.”
Asked if the banking crisis affected NBFIs as well, he acknowledged the issue: “Banks and NBFIs are interconnected, and customers often look to NBFIs as an alternative when they face challenges with banks, and vice versa. So, when confidence in one sector drops, it can affect the other too”
“Additionally, the higher cost of funds and the series of market disruptions we’ve experienced since 2020 have severely affected the profitability of the NBFI sector. Both sectors are part of the larger financial ecosystem, so it’s natural that a crisis in one will ripple through the other,” he also said.
It is also important to include cottage, micro, small and medium entrepreneurs (CMSMEs). Both banks and NBFIs are committed to this. “IDLC has always prioritized supporting cottage, micro, small, and medium enterprises (CMSMEs), which are critical to Bangladesh’s economic growth. Currently, 40% of our total loan portfolio is dedicated to CMSMEs, and we have financed over 52,000 of these businesses since the inception of our SME division,” said Jamal Uddin.
“In 2024, we served 4,200 CMSME clients and are opening five new sub-branches to expand our reach. Additionally, 17% of our CMSME loans are directed toward women entrepreneurs.”
Diversifying products and services to cater to new clients is also essential, according to ANM Mahfuz, additional managing director of Bank Asia PLC.
“We are offering competitive rates taking into account Bank Asia’s market positioning strategy. We are also designing/re-aligning segment-wise corporate and retail liability products with better propositions. Our initiatives also include centralizing corporate business units and offering efficient cash management service, payroll banking through a dedicated corporate liability department/desk to large corporate houses in order to collect their transactional accounts.”
In order to gain more depositors, the often-overlooked issue of containing non-performing loans (NPLs) is also a pertinent issue. “We don’t solely focus on large corporations. Instead, we diversify our portfolio across various sectors, including CMSMEs, which helps us manage risks effectively. While large loans still require board approval, most loan decisions are handled at the mid to senior management level, allowing for quick, sound decision-making,” said the IDLC Finance MD.
Various steps are required to keep NPLs in control, such as raising flag/ early warning/ ventilating information well in advance at pre-classification stage to branches and respective business wings. Similarly, taking coordinated and preventive measures to refrain the asset portfolio from probable down gradation is also important, said Mahfuz, Bank Asia’s AMD.
‘Crorepoti’ accounts keep spiking
The number of bank accounts holding deposits exceeding Tk1 crore increased to 118,784 as of June.
The number of such bank accounts increased by 2,894 in the June-end quarter compared with that of 115,890 in the March-end quarter, according to Bangladesh Bank data.
The number was 116,908 at the end of December and 113,554 in June 2023.
However, despite the growth in high-value accounts, the majority of bank accounts in Bangladesh held relatively small amounts.
Out of the total 153.5 million bank accounts nationwide, 113.1 million accounts hold less than Tk5,000 each, according to the central bank data.
The accounts holding more than Tk1 crore represent only 0.075% of the total bank accounts, yet they account for about 42% of aggregate deposits.
The total deposits in the banking sector stood at Tk1,762,000 crore at the end of June.
It included Tk773,000 crore in accounts holding more than Tk1 crore.
Among the accounts with over Tk1 crore deposits, 1,818 accounts held deposits over Tk50 crore each, collectively holding more than Tk269,000 crore.
The volume of money in accounts holding Tk1 crore each was Tk730,000 crore at the end of June 2023, and Tk677,000 crore at the end of December 2022.
Deposit scenario in the country
Total deposit liabilities, excluding interbank items of the country's 61 scheduled banks, increased by 4.34% to about Tk1,839,000 crore during the second quarter (April-June or Q2) of 2024, compared to the first quarter (Q1).
Bankers attributed the growth in Q2 due to better deposit rates.
The deposit growth during the January-March quarter (Q1) was recorded at less than 1%, reaching over Tk1,762,000 crore, according to a recent Bangladesh Bank (BB) report.
It highlighted that urban deposits, which make up more than 84% of total deposits, grew by 4.32% to about Tk1,556,000 crore by the end of June 2024.
Meanwhile, rural deposits, accounting for over 15% of total deposits, increased by 4.47% to about Tk283,000 crore.
Savings deposits, the second-largest category, rose by 2.43% to Tk382,000 crore, according to the report.
Bankers say this growth is primarily driven by rising interest rates on deposits.
Shariah bank deposits rise
In June, total deposits with Islamic banks increased by Tk11,625 crore, or 2.71%, to Tk440,427 crore from that in the previous month, according to a Bangladesh Bank report.
Bankers credited the performance to the sector's overall growth.
According to the report, the amount of loans taken in order to be invested reached Tk513,734 crore, a rise of 1.91% from that in the preceding month.
Islamic banking investments account for around one-fourth of the total investment of the banking industry, according to the report.
As of June, the total investments of all scheduled banks stood at Tk2,062,853 crore, with conventional banks accounting for Tk1,549,119 crore.
The assets of the Islamic banking sector also grew in June by 5.18% to Tk853,397 crore compared to that in the previous month, central bank data showed.
Besides, Islamic branches and conventional banks with Islamic windows offer Shariah-based banking services.
There was positive development with regard to receipts of wage earners' remittances through Islamic banking, as it rose to Tk10,845 crore in June from Tk10,634 crore in May.
The total outstanding agent banking deposits in Islamic banking stood at Tk21,334, up 3.44% from that in May.
Green financing
Loan distribution for sustainable finance by banks and financial institutions increased by 32% or Tk28,103 crore in the second quarter (April-June) of the ongoing calendar year, amid new products in the sector.
In the April-June period, banks and no-bank financial institutions (NBFIs) distributed Tk116,799 crore in loans for sustainable finance, up from Tk88,696 crore in the previous March quarter, according to a Bangladesh Bank report.
Loan distribution for green finance in the June quarter also increased by Tk732 crore to Tk7,771 crore compared to the first quarter (January-March) period.
According to data from the Bangladesh Bank, from January to June of this year, banks and NBFIs distributed Tk205,000 crore in loans in the sustainable sector, which accounts for nearly 37% of the total loans distributed in the sector during the period, although the target was set at 20%.
In 2023, sustainable financing accounted for 17.23% of the total loans distributed in the banking and financial sector, up from 11.59% in the previous year.
In the first six months of this year, banks distributed Tk15,211 crore in green financing, which constitutes 14.67% of the total loans, although the target was 5%.
During the June quarter this year, 28 banks and 13 finance companies managed to meet their target of 20% for sustainable finance in relation to total loan disbursement.
NBFI lending grows
At the end of June this year, non-bank financial institutions (NBFI) lending amounted to Tk74,918 crore, reflecting a 3.42% year-on-year increase, compared to Tk72,439 crore at the same period last year.
The deposit amount held by NBFIs reached Tk45,116 crore at the end of June this year, marking a growth of less than 1% year on year.
According to the latest "NBFIs Statistics" report, published by the Bangladesh Bank, deposits stood at Tk44,683 crore at the same time last year.
Most NBFI borrowers are from the private sector, with 99.88% of total lending directed towards this segment.
Key lending sectors include industry, trade and commerce, consumer finance and construction.
BB initiatives
Bangladesh Bank Governor Ahsan H Mansur requested customers to keep calm regarding the crisis plaguing over half a dozen ailing banks, expressing optimism that their situation would turn around soon.
Seven to eight banks are currently contending with a liquidity crisis after thousands of crores were misappropriated through loans and irregularities, Mansur said at a press conference after meeting with bankers at the central bank headquarters last month.
He added that those banks would be given liquidity support on a limited scale considering the interests of depositors.
However, he added that help would not be provided by printing money.
"If we want to bail out these banks, around Tk 200,00 crore is needed," he said. "But if we print the money, macroeconomic stability will be destroyed and the exchange rate will surpass Tk 150 per US dollar."
So, the Bangladesh Bank will play the role of guarantor for trouble-hit lenders, allowing them to avail liquidity support or loan facilities from other banks, the central bank governor explained.
"Such banks will get liquidity from the inter-bank money market," he said.