Bank deposits rise despite low yields
Deposits in banks grew remarkably last year as uncertainty over the coronavirus forced people to cut non-essential spending and save more, while loan growth declined slightly due to the slowdown Business.
Deposits totaled Tk 1,485,601 crore in fiscal year 2020-2021, up 8.49 percent from a year ago, according to data from the Bangladesh Bank.
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Growth in deposits, however, was 8.95% in FY20.
The previous year, loan growth slowed to 8.48%, down from 8.95% a year ago. Banks disbursed Tk 1,154,955 crore in loans in FY21.
Mirza Elias Uddin Ahmed, Managing Director of Jamuna Bank, attributed the robust growth in remittances and increased export earnings to the expanding deposit base.
The inflow of foreign loans has increased throughout the last fiscal year, contributing to the expansion of deposits.
“But companies adopted a policy of slowing down when it came to expanding their operations, so banks faced lower than usual credit growth,” Ahmed said.
The loan-to-deposit ratio stood at 71.55 percent the previous year compared to 76.22 percent a year earlier, comfortably below the regulatory cap.
Conventional banks are allowed to keep the loan-to-deposit ratio at 87 percent and Sharia-based banks at 92 percent.
But the downward trend in the loan-to-deposit ratio indicates that banks are struggling to ensure adequate profits.
Banks’ net profit stood at Tk 5,278 crore in 2020, down 31% from the previous year.
Banks managed to stop the downward trend in profits in the first half of 2021 by lowering the interest rate on deposits, which allowed them to earn significant sums.
The weighted average deposit rate stood at 4.13% in June, down from 5.06% a year ago, according to BB data.
The lower deposit rate, lower than the inflation rate, led the central bank to ask 10 banks for an explanation last month.
Ahmed said the gloomy situation in the banking sector has started to fade as the country moderately successfully battles the second wave of coronavirus infections.
The government recently reopened the economy, helping the banking sector to recover, he said.
“A number of entrepreneurs have recently submitted project proposals to us to receive loans. This is a good sign for us.
The excess liquidity began to wane shortly after the BB began to mop up excess funds from the banking system.
“Financial sector indicators have given a glimmer of hope that the banking sector will soon regain the prosperity it enjoyed before the pandemic,” Ahmed said.
Md Arfan Ali, Managing Director of Bank Asia, said the growth in deposits over the past fiscal year was not unusual, as the banking industry has typically grown at 2-3% per year.
However, the decline in loan growth was not a regular occurrence, he said, adding that demand for credit had picked up in the past two months.
“The demand for taka and the US dollar has recently increased to a large extent. As a result, the banking sector will be able to quickly recover from the ongoing downturn.”
Among all lenders, Islami Bank Bangladesh disbursed the highest amount, at Tk100,400 crore in FY21.
Sonali Bank took the top spot in deposit mobilization, raising Tk 132,798 crore.