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Mattress money drops significantly

Tk 460b returns to bank vaults in Jul-Oct 2023

JUBAIR HASAN | December 05, 2023 00:00:00

The volume of mattress money or currency outside banks plummeted significantly in the first four months of the current fiscal year as a much-needed respite to credit-starved lenders, according to bankers.

Deposits worth over Tk 460 billion, which flew out of the banking system because of trust deficit amid some large-scale debt anomalies, returned into bank vaults in July-October 2023, riding on higher interest rates.

Data available with the central bank revealed that the volume of currency outside banks stood at Tk 2.46 trillion at the end of October 2023.

The deposit outflow from banks kept rising since September 2022 following reports of gross irregularities in some commercial banks.

The amount rose to a record high of Tk 2.92 trillion in June 2023.

The Bangladesh Bank's new rate regime on the market-based reference rate, known as SMART (six-month moving average rate of treasure), has played a part in increased bank deposits.

Such continuous rise in deposit gains amid a contractionary monetary policy started luring potential depositors to banks, especially at a time when other windows for investment continue to shrink ahead of the general election.

As a result, the volume of deposit outflow from banks keeps declining with figures reaching Tk 2.66 trillion in July, Tk 2.58 trillion in August and Tk 2.53 trillion in September, showed the BB data.

It also disclosed that the volume of total deposits in the banking channel was Tk 15.95 trillion in June, which rose to Tk 16.37 trillion in October.

The total volume of deposit increased year on year by 9.79 per cent in October.

Seeking anonymity, a BB official said the central bank as part of combating inflation has increased the policy rate by 125 basis points in the last few months to squeeze money supply in the market, forcing the banks to raise the deposit rate to mobilise funds.

"Look at the recent statistics. It's very much encouraging for our banking sector as the volume of currency outside banks has dropped by over Tk 460 billion in the last four months until October."

According to money-market players, the uptrend in deposit rate continues to reach 9.30 per cent in some conventional banks while the rate is much higher in unconventional banks where liquidity pressure is comparatively higher.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB), said banks have raised both deposit and lending rates in line with the SMART rating paradigm, changing the scenario of mattress money.

He finds deposit rates continuously increasing in the banking sector. There are few banks which have started offering depositors as high as 9.30 per cent.

"It's encouraging to see depositors coming back to the banking system. I hope the volume of mattress money will be lessening in the coming days as public confidence in banks keeps increasing," he added.

Talking to the FE, Dhaka Bank managing director and CEO Emranul Huq said currency outside banks increased largely for trust deficit following debt anomalies in some shariah-based banks.

Even depositors, driven by fears of losing their money, withdrew funds not only from the unconventional banks but also from banks having poor ratings, he cited.

"Good news is depositors have started returning to the banking system as they have started believing that banks are the safest place for investment as no bank fails to return funds on demand till today."

When contacted, Policy Exchange of Bangladesh chairman Dr M Masrur Reaz said there were very limited investment instruments for general people here.

Excepting banks, he said, potential investment areas were savings certificate and capital market. But the share market is unhealthy and putting money in stocks is becoming extremely risky while the rates on savings certificates have gone down logically in recent times.

"That is why people are now returning back to banks, which is a good sign," added Mr Reaz.


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