On one hand, initiatives are underway to reduce the use of physical cash and build a cashless economy, while on the other, people are withdrawing money from banks and keeping it with themselves.
As a result, the amount of cash held outside the banking system in the country is rising rapidly.
With bank deposit growth remaining comparatively slow during the same period, economists and bankers are viewing this trend with growing concern.
According to them, high inflation, a crisis of confidence in the banking sector, financial vulnerabilities in several banks, an uncertain economic climate, and a cash-reliant business culture have driven the public's tendency to hold onto physical cash.
If this trend persists, it could pose significant risks to the banking system.
The latest data from Bangladesh Bank shows that by the end of May this year, the amount of cash held by the public outside of banks stood at Tk349,374 crore.
Just a month earlier, in April, this amount was Tk299,425 crore.
This means that in the span of just one month, currency outside banks surged by Tk49,949 crore, or 16.68%.
Compared to the same period last year, the growth of currency outside banks stood at 18.92%, when the amount of cash held by the public was Tk293,778 crore. In contrast, bank deposit growth during the same period was only 11.44%.
Commenting on the matter, Mustafa K Mujeri, former chief economist of Bangladesh Bank, told Dhaka Tribune: "The biggest reason behind the increase in cash held by the public is a lack of confidence in banks. Many depositors no longer feel secure keeping their money in banks. Consequently, a portion of the funds withdrawn from weaker banks is not returning to the banking system."
Due to inflation, monthly household expenses have also risen. More cash is required than before to meet expenses for groceries, medical care, education, and other essential sectors. Furthermore, amidst an uncertain environment, many families consider keeping cash on hand as a safer option, he added.
According to bankers, the trend of clients withdrawing money from several weak banks has not yet completely stopped. While a portion of the withdrawn funds is being deposited into relatively stronger banks, a major chunk remains in the hands of the public as cash.
According to Bangladesh Bank data, total deposits in the banking sector stood at Tk2,041,099 crore at the end of May. This is 11.44% higher than the same period last year, when bank deposits amounted to Tk1,832,065 crore.
Stakeholders say that the financial crisis in a few banks played a major role behind the tendency to withdraw bank deposits.
Once the weak financial standing of several banks became public, it triggered anxiety among customers, leading to a surge in withdrawal pressure.
At one stage, when a few banks lost the ability to turn around on their own, they were merged to form the state-owned Sammilito Islamic Bank. Additionally, Islami Bank has recently experienced a major liquidity crisis as well.
Arief Hossain Khan, executive director and spokesperson of Bangladesh Bank, said that the trend of withdrawing money from banks to hold it as cash is not positive for the banking system or the overall economy. This could further intensify the liquidity crisis in banks and poses a risk of abnormally inflating the flow of cash in the market.
