The wave of panic-driven withdrawals that gripped the banking sector in the wake of the recent political transition has begun to subside, as confidence among depositors shows signs of revival.
This resurgence of trust, spurred by regulatory interventions and stabilising economic conditions, has prompted a gradual return of funds to the banking system. However, the pace of deposit growth remains subdued.
The crisis of confidence in the banking sector had been brewing due to a series of irregularities and financial mismanagement.
The political upheaval exacerbated these anxieties, leading to an outflow of deposits as customers sought to safeguard their liquid assets.
However, recent measures by Bangladesh Bank have reassured the public, resulting in a reversal of this trend.
According to Bangladesh Bank’s latest report, total deposits in the banking sector stood at Tk17.76 lakh crore at the end of December, up from Tk16.53 lakh crore in the same period the previous year.
This marks an increase of Tk1.23 lakh crore, or 7.44% year-on-year.
Over the last six months, deposits grew by Tk34,528 crore, recovering from a sharp decline witnessed in the July–September quarter.
Meanwhile, the volume of cash held outside banks has also decreased.
As of December, the amount of money in circulation outside the banking system declined to Tk2.76 lakh crore, down from Tk2.91 lakh crore in July, reflecting a contraction of Tk15,259 crore over five months.
Experts attribute the slow deposit growth to persistently high inflation, which has eroded people’s ability to save.
The economic slowdown, coupled with political uncertainty, has forced many to dip into their savings, limiting fresh deposits.
Additionally, the cost of living crisis has left many households with little to set aside.
Former World Bank lead economist in Dhaka, Zahid Hussain, pointed out that the economic turbulence surrounding the political transition, combined with the restructuring of several bank boards, led to deposit withdrawals.
“Concerns over financial instability resulted in an increased preference for holding cash. However, as Bangladesh Bank has stepped in with corrective measures, we are seeing a gradual return of funds to the banking system,” he explained.
Another factor aiding the recovery is the rise in interest rates.
The prospect of higher returns on deposits has incentivised savers, drawing funds back into banks.
However, analysts caution that deposit growth will remain sluggish unless inflationary pressures ease and broader economic stability is ensured.
Bank executives acknowledge that while confidence is returning, deposit mobilisation remains a challenge.
Managing Director of Mutual Trust Bank, Syed Mahbubur Rahman, noted that the economic disruptions of 2022 and 2023 had already weakened deposit growth, and the added impact of political instability in 2024 further exacerbated the situation.
“A combination of high inflation, declining foreign reserves, and liquidity stress in some banks dampened trust in the financial system. However, under the current central bank leadership, efforts to rebuild confidence are showing results,” he added.
The banking sector remains heavily reliant on term deposits, which constitute 88% of total deposits.
As of December, demand deposits stood at Tk1.97 lakh crore, while term deposits accounted for Tk15.78 lakh crore.
While the deposit recovery signals a positive shift, economic analysts stress the need for a stable investment climate to ensure long-term sustainability.
Without a significant boost in deposits, banks may struggle to finance new investments, which could hinder employment and income growth.
“Investment stagnation due to weak deposit growth could create long-term economic challenges,” warned Hussain.
Although the banking sector is witnessing a slow but steady rebound, experts emphasise that restoring full confidence will require a sustained period of financial stability, transparency, and stronger governance.
Only then can the sector hope to regain its footing and support broader economic growth.
