Mattress money buildup drops by Tk 370 billion

Mattress money flowed into bank vaults in greater volume in the first six months of the current fiscal following a notable rise in deposit rates.
According to officials and bankers, baited by rate rise amid tightfisted monetary stance, deposits worth over Tk 370 billion, returned into bank vaults in the July-December 2023 period.
Data available with the central bank reveal that the volume of currency outside banks stood at Tk 2.55 trillion at the end of December 2023, down by around 13 per cent from June's count of Tk 2.92 trillion.
The deposit outflows from banks kept rising since September 2022 following reports of gross irregularities in some commercial banks. The amount rose to a record-high Tk 2.92 trillion in June 2023.
The Bangladesh Bank's new rate regime on the market-based reference rate-better known as SMART (six-month moving average rate of treasure)--has played a part in bank-deposit rebound.
Such continuous rise in deposit gains amid a contractionary monetary policy started luring potential depositors back to banks, especially at a time when other windows for investment continue shrinking.
As a result, the volume of deposit outflows from banks keeps declining with 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, showed the BB data.
Seeking anonymity, a BB official says the central bank, as part of combating inflation, has increased the policy rate by 150 basis points since July last 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 had dropped by over Tk 370 billion in the last six months until December'23," the central banker told the FE writer.
When asked about the very recent upturn in currency outside the banks, he said the deposit outflow witnessed a little rise in November and December mainly because of the immediate-past general election.
"I think you will see the downward trend in mattress money again when the stats of January are completed," he said.
According to the BB¸ the volume of total deposits in the banking channel was Tk 14.90 trillion in December in 2022, which rose to Tk 16.54 trillion a year after.
The total volume of deposits increased year on year by11.04 per cent in December'23.
According to money-market players, the uptrend in deposit rate continues to cross 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), says 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 out 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."
Contacted, Policy Exchange of Bangladesh chairman Dr M Masrur Reaz said there were very limited investment instruments for common 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," says Mr Reaz about the turnaround.

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