Banking sector regains momentum amid crisis recovery

The banking sector in Bangladesh, previously hindered by issues like the S. Alam Group's financial exploitation, a significant amount of non-performing loans, and liquidity crises, is showing signs of recovery. Customers who had previously "lost confidence" and moved away from banks are now returning, alongside a rise in digital transactions. Positive trends are also emerging in the currency market, helping to normalize this critical financial sector.

According to the Bangladesh Bank, various factors had led customers to withdraw funds and keep them at home, a trend that persisted for ten months. However, those funds are now gradually returning to the banks.

Sources indicate that since November of last year, customers began withdrawing money to keep it at hand, placing additional pressure on banks. However, in September and October of this year, this trend reversed, with over 140 billion BDT being returned to banks.

An updated report from the central bank reveals that as of the end of October, the total amount of printed currency stood at 3.52 trillion BDT. Of this, 518.14 billion BDT was held in the central bank and Sonali Bank's chest branches, while 217.37 billion BDT was in bank vaults, and 2.79 trillion BDT was held by the public. The total amount of currency in circulation (including funds in both public hands and bank vaults) was 3.01 trillion BDT at the end of October.

In comparison, by the end of August, the total amount of printed currency was 3.52 trillion BDT. At that time, 359.22 billion BDT was held in the central bank and Sonali Bank's chest branches, 231.77 billion BDT was in bank vaults, and 2.93 trillion BDT was held by the public. On August 15, the total amount of currency in circulation was 3.16 trillion BDT, indicating that 142.78 billion BDT held by the public returned to the banks within two months.

Industry insiders noted that several factors had increased the trend of holding cash, including high inflation, election-related uncertainties, additional spending during the two Eids, news of bank consolidations, and political protests in July and August. These events led many to withdraw money, resulting in an increase in cash held outside banks. However, with stability returning through initiatives by the interim government, people’s confidence in the banking sector is improving, leading to an inflow of cash back into banks.

Not only is cash being returned to banks, but digital transactions are also increasing. In the changing situation, monthly transactions via cards rose by over 40 billion BDT. This information was detailed in an updated report from the central bank.

It was reported that after Prime Minister Sheikh Hasina left the country on August 5, ATM booths were closed for several days "due to security concerns," causing a significant drop in ATM card transactions that month. However, transactions in ATMs, point-of-sale (POS) systems, customer relationship management (CRM), and e-commerce picked up again in September. Despite this improvement, a severe liquidity crisis still affects some banks, and ATM services in weaker banks are yet to normalize fully.

According to the central bank report, in September of this year, transactions across ATMs, POS systems, CRM, and e-commerce platforms amounted to 382.7 billion BDT, up from 341.53 billion BDT in August—a rise of 41.17 billion BDT or 12 percent. Additionally, the number of transactions in September reached 45.79 million, compared to 39.02 million in August, an increase of 6.69 million transactions.

Currently, there are 13,016 ATM booths across the country. According to the central bank's report, September saw 27.19 million transactions in ATMs, up from 17.99 million in August, an increase of 2.71 million transactions. The amount transacted in September was 202.66 billion BDT, compared to 187.57 billion BDT in August, marking an increase of 15.09 billion BDT or nearly 8 percent.

In September of this year, transactions made through POS machines in various stores and shopping centers totaled 6.64 million, with 29.64 billion BDT transacted. In the previous month, March, 5.65 million transactions totaling 25.79 billion BDT were made. Compared to August, the number of transactions in September increased by 985,630, with the transacted amount rising by 3.85 billion BDT.

In September, e-commerce facilitated 5.68 million transactions, amounting to 18.68 billion BDT. In the previous month, there were 5.32 million e-commerce transactions totaling 10.21 billion BDT, indicating an increase of 369,592 transactions and 1.67 billion BDT in the total amount transacted.

In September, the number of transactions via CRM reached 12.67 million, amounting to 131.70 billion BDT. In the previous month, the number of CRM transactions was 10.46 million, totaling 111.26 billion BDT, reflecting an increase of 2.63 million transactions and 20.44 billion BDT in transaction volume.

Senior officials of private banks report that despite the current situation in the country, deposits have increased significantly in well-performing banks. Additionally, due to liquidity assistance from the central bank, weaker banks are regaining some customer trust, enhancing overall momentum in the banking sector.

Meanwhile, the long-standing instability in the foreign currency market has subsided, with the dollar market beginning to stabilize.

The central bank's report shows a current account deficit of 190 million USD in July of the current fiscal year, compared to a deficit of 300 million USD in the same month last year—a decrease of 110 million USD. During the July-August period of this fiscal year, there was no current account deficit; rather, there was a surplus of 110 million USD. In contrast, there was a 610 million USD deficit during the same period last fiscal year.

The deficit in September rose due to an increase in import expenses, resulting in a 130 million USD deficit for the July-September period of this fiscal year, compared to a deficit of 1.83 billion USD in the same period last year—a reduction of 1.7 billion USD.

This reduction in deficit is largely due to an increase in remittances sent by expatriates. Remittances rose by 30 percent in July-October of the current fiscal year, while they declined by 4.5 percent during the same period last fiscal year. Exports rose by 5 percent in July-September, contrasting with a decline during the same period last year. Foreign loan inflows increased by 12 percent in the current fiscal year's July-September period, in contrast to a 17 percent decline during the same period last fiscal year. Foreign direct investment (FDI) has also seen a modest increase, rising by over 280 million USD in July-August of the current fiscal year, up from 250 million USD in the same period last year.