Banking industry saw a record-high single-month deposit outflow worth Tk 200 billion last June, largely for panic withdrawals and hundi transactions, sources said.
The surge in deposit flight added up to pressure on the overall liquidity situation in the sector, sometimes needing fund feeding to banks by the central bank.
A stark fact is that the volume of mattress money or currency outside the banks ballooned to Tk 2.90 trillion by the end of June 2024 from Tk 2.70 billion recorded in the previous month, according to latest statistics of Bangladesh Bank (BB).
Officials and money-market analysts cite factors like panic withdrawal of cash following reports over good and weak banks, growing yield on government securities, inflationary burden and Eid-related expenditure behind the surge in mattress money.
The sources said the deposit outflow from banks kept rising since September 2022 following reports of gross irregularities in some commercial banks that shook clientele confidence.
Thereafter, the mattress money began coming back into the bank vaults with the figures reaching Tk 2.66 trillion in July, Tk 2.58 trillion in August, Tk 2.53 trillion in September, Tk 2.46 trillion in October and Tk 2.48 trillion in November. Then it started increasing to reach Tk 2.55 trillion in December, Tk 2.57 trillion in January, 2024, Tk 2.58 trillion in February, Tk 2.61 trillion in March and Tk 2.64 trillion in April this year.
Seeking anonymity, a BB official said the volume of currency outside the banks continued rising in recent months. "But June's figure is surprising as Tk 200 billion in a single month is huge."
As the yields on government securities kept rising after the central bank tightened money supply to contain inflation, many institutional and individual depositors in banking industry started diverting their funds into the risk-free investment instruments, the official said.
On the other hand, the BB official said, there were instances of mass withdrawal of funds in some banks following media reports over possible mergers in some of the commercial banks. "These could few reasons behind the mattress money buildup," the central banker said.
Apart from inflationary pressure and trust deficit in some banks following media reports on weak banks, says managing director and CEO of Mutual Trust Bank (MTB) Syed Mahbubur Rahman, many institutional and individual depositors in banking industry started diverting their funds to the government securities riding on higher bets.
He said the share of the non-competitive bids-wherein both institutional and individual investors participate-against the notified auction demand was only 10 per cent in June 2023. Now the share doubled over 20 per cent. "This could be another reason."
The experienced banker further explains that vicious circles of Hundi became hyperactive to allure remitters with credits taken away from the banking system. "This is also another reason."
Contacted, Policy Exchange of Bangladesh Chairman Dr M Masrur Reaz said June was the month when the country observed Eid-ul-Azha. It means a good portion of the deposit was used in purchase of cattle items and other essentials.
"This also intensified the mattress money buildup."
jubairfe1980@gmail.com