Deposit growth in the country’s banking sector hit a 30-month high of 12.19 per cent in October this year as savers returned to banks after the government in the budget for the 2019-2020 fiscal doubled taxes on interest earnings from the national savings certificates.
Besides, automation of the NSC sales system has prevented a section of savers including institutions and high net worth individuals from purchasing NSCs beyond the allowable limit.
As a result, those high net worth individuals and entities have shifted their funds to banks instead of investing those on NSCs, Bangladesh Bank officials said.
The growth in October was the highest after 12.43 per cent growth in April, 2017.
As per the BB data, deposits in the banking sector stood at Tk 11,06,258.4 crore in October of FY20, increasing by Tk 1,20,225.8 crore from Tk 9,86,032.6 crore at the end of October of FY 2018-19.
Since April, 2017, the deposit growth in the country’s banking system has remained below 12 per cent with the lowest of 8.57 per cent in April, 2018.
The officials said the launch of the NSC online management system and the increased rate of source tax on savings tools had contributed to the sharp drop in NSC sales in the first four months of this fiscal year.
In July-October of FY20, the government’s net sales of NSCs dropped by 69.08 per cent or Tk 12,316.71 crore year-on-year.
Government’s net borrowing by issuing NSCs dropped to Tk 5,512.02 crore in July-October of FY20 against Tk 17,828.73 crore in the same period of FY19.
Bankers said that the deposit growth in the banking sector had improved for two reasons — fall in NSC sales in recent months and increase in deposit rates in banks.
Apart from these, money flow in the banking system improved in last four months due mainly to the government’s borrowing from the central bank against treasury bills and bonds, said BB officials.
They said the central bank’s heavy sales of the US dollars in the country’s local market to keep the exchange rate of the US dollar stable had contributed to the fall in deposit growth in FY19.
In FY19, the BB injected $2.34 billion.
The injection of the US dollar in the local market had resulted in piling up of currency notes worth around Tk 20,000 crore at the central bank, BB officials said.
In five months (July-November) of FY20, the BB’s injection of US dollar was around $300 million compared to the monthly average injection of $191 million in last fiscal year.
On the other hand, the government in the first three months of this fiscal year borrowed Tk 4,539.4 crore from the central bank by issuing treasury bills and bonds.
The government’s outstanding borrowing from the BB by issuing treasury bills rose to Tk 16,103.3 crore at the end of September, 2019 from Tk 14,478.4 crore at the end of June, 2019.
Besides, its outstanding borrowing from the BB by issuing treasury bonds increased to Tk 16,281.5 crore on September 30 from Tk 13,367 crore on June 30.
By default, the government’s borrowing from the BB helped the central bank to return the money into the banking channel and bring some ease in the money circulation, officials of the central bank said.
As per the BB data, deposit growth in the banking sector dropped to 9.93 per cent in June of 2019.
In July, the growth rate increased to 10.69 per cent. The growth rate increased to 11.40 per cent in August and 11.88 per cent September.
In December, 2018, the deposit growth in the banking sector had dropped to 9.04 per cent.
Although the deposit growth increased a bit, the private sector credit growth dropped to a fresh nine-year low in October, 2019 mainly due to the government heavy borrowing from the scheduled banks.
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