Several banks are currently facing a liquidity crisis, unable to return depositors' money on time.
Even though some banks have sufficient funds, the poor investment climate in the country prevents them from issuing loans.
As a result, private sector credit growth has plummeted to its lowest level in 11 months.
The dollar market, which has been volatile for the past two years, may seem stable, but the rate of opening letters of credit (LCs) is steadily declining.
At the same time, prices in the market aren’t dropping, with items like eggs seeing price increases, drawing criticism on social media. Although the government claims inflation is now on a downward trend, many people are sceptical.
Customers are facing difficulties withdrawing amounts as low as Tk100,000 or 200,000, and in some cases, banks are even bouncing cheques for just Tk10,000.
Non-bank financial institutions are facing the same problems. Not only that, but even Islami Bank, which was one of the most stable banks a decade ago in 2014, is now in a critical condition. A mid-level official of the bank said that due to the cash shortage, their long-standing reputation is deteriorating.
According to Bangladesh Bank data, deposits in the banking sector have actually decreased in the first two months of the current 2024–25 fiscal year (July–August).
During this period, deposits in banks fell by approximately Tk11,000 crore, an unprecedented decline in recent history.
At the end of June, total deposits stood at Tk17,42,797 crore taka, but by the end of August, it had dropped to Tk17,31,890 crore, a reduction of Tk10,907 crore in the first two months of the fiscal year.
The report also shows that in the first two months of the previous fiscal year (2023–24), deposits had increased by Tk23,254 crore.
The negative flow of deposits has exacerbated the liquidity crisis. Even banks offering interest rates of 14–15% are struggling to attract deposits, and customers are queuing up at various branches daily to withdraw their funds, often returning disappointed.
Meanwhile, due to political instability and other factors, government revenue has not increased, forcing the government to rely on bank loans.
This has restricted private-sector investment, and employment growth has stagnated as a result.
A year of strains
The World Bank has projected that Bangladesh’s economy will remain under pressure for at least another year.
In a report,“Bangladesh Development Update,” released on October 15, the organisation cited political uncertainty, a deteriorating law and order situation, and labour unrest in industrial areas as the three main barriers to normalising economic activity.
The report highlighted several challenges, including high inflation, pressure from external sectors, financial sector weaknesses, and political uncertainty, which are limiting growth prospects.
In this context, Ashraf Ahmed, president of the Dhaka Chamber of Commerce, said that the private sector is grappling with a range of issues, including currency depreciation, high inflation, low foreign exchange reserves, high-interest rates on bank loans, and obstacles to opening LCs.
He said that procedural delays and fines related to customs duties on imported goods are continuously driving up business costs.
Investment low, companies shutting down
Due to a lack of confidence in investment, the banking sector’s loan disbursement operations are under significant pressure. The dollar shortage has stalled investments for the past two years, and the situation has worsened following the formation of the interim government.
In the last five months (May-September), 128 companies have closed, according to data from the Registrar of Joint Stock Companies and Firms (RJSC). Of these, 46 companies shut down in August alone, and another 26 closed in September.
Many business sponsors have already left the country, leading to stagnation in business activities.
Since 2022, the dollar shortage, high inflation, and global economic instability have slowed investment flows. The ongoing political uncertainty has further complicated the situation, eroding investor confidence.
Banks are receiving no new investment proposals from either local or international investors. Due to high inflation, consumer demand is also declining, leaving banks and investors in a “wait and watch” mode.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said: “Since the dollar crisis began in 2022, investment has slowed down. Since July of this year, the situation has worsened further, with LC openings continuing to decline, indicating stagnant investment.
“The biggest problem is that banks are suffering from a liquidity crisis, and amid the current uncertainty, foreign investment is not coming in. In this situation, banks are more inclined to invest in government bonds rather than extending loans to the private sector, which is reducing private sector loan growth,” he added.
According to Bangladesh Bank, private sector credit growth dropped to 9.86% in August from 10.13% in July, the lowest in 11 months.
Meanwhile, revenue collection has fallen short of targets by more than 15,000 crore takas in July-August. In the same period last year, revenue collection stood at 47,562 crore takas, compared to 42,106 crore takas this year, a decline of 11%.
Due to the shortfall in revenue, the government’s borrowing from commercial banks nearly doubled in the first three months of the fiscal year, with loans amounting to 47,209 crore takas, up from 24,474 crore takas a year earlier, an increase of about 93%.
Labour unrest in the garment industry has further complicated the situation. While protests disrupted production in factories in areas like Ashulia and Gazipur, exports rebounded last month, bringing some positive economic news.
Export earnings rise
According to the Export Promotion Bureau (EPB), Bangladesh's export earnings in September increased by 6.78% to $3.52 billion, up from $3.29 billion in September 2023.
In the July–September period of the current fiscal year, export earnings rose by 5.04% to $11.37 billion, compared to $10.82 billion during the same period last year.
The garment sector saw a 5.43% increase in export earnings during July–September, reaching $9.28 billion, up from $8.81 billion last year.
In September alone, the garment sector earned $2.78 billion, reflecting a 6% increase. Export earnings from woven products grew by 8.2% to $1.18 billion, while knitwear export earnings rose by 4.40% to $1.60 billion.
In September, agricultural product exports generated $97 million, a 16.82% growth. Plastic products earned $27 million, a 32.50% increase compared to $21 million during the same period last year.
Meanwhile, another economic indicator—remittance flow—has also shown positive growth.
In September, total remittance income surpassed $2 billion. The month marked the second-highest remittance income this year, with an 80% growth rate.
According to data from Bangladesh Bank, remittance income in September amounted to $2.40 billion, compared to $2.22 billion in August.
In September 2023, remittance income was $1.33 billion. This marks an 80% increase in remittance inflow compared to the same period last year.
According to related sources, the post-Covid-19 surge in import expenses due to global and domestic factors, coupled with the capital flight by influential individuals of the outgoing government, has put significant pressure on the country's foreign currency reserves.
However, the recent increase in remittances and exports is helping to boost reserves.
According to the latest data from Bangladesh Bank, as of October 8, the country's gross reserves stand at $24.97 billion, or $19.82 billion according to the IMF's BPM6 calculation method.
As of October 2, gross reserves were $24.74 billion, and according to BPM6, reserves stood at $19.76 billion, indicating a slight increase in reserves.
Bangladesh Bank Governor Dr Ahsan H Mansur recently said at an event that four to five families have taken away Tk2,00,000 crore from banks.
“This could have led to a recession, but it didn't happen. If the central bank does not handle things carefully, Bangladesh could face a crisis similar to Sri Lanka’s. This is not a solution. So we have to struggle for some time,” he said.
