After a long time, the banking sector has finally seen a sharp rise in deposit growth in August, easing the liquidity position in the banking system.
The deposit growth registered 11.39 percent year-on-year in August, compared to 10.66 percent in the previous month.
Previously, deposit growth had been stuck between 9 and 10 percent since December last year, according to central bank data.
The total deposits stood at Tk1,080,000 crores in August.
"The fall in sales of savings instruments boosted the deposit growth in the banking sector," said Sayed Mahbubur Rahman, managing director of Dhaka Bank.
He said banks are now offering above 10 percent interest rate to the depositors for short time deposits – which is higher than the interest rate of savings instruments.
The high availability of dollar amid high remittance inflow and slow import expenditure also gave the banks a comfortable liquidity position, he said, adding, "The current account balance is now positive, which is also a great relief for the money market."
However, he warned that there is nothing to be too hopeful about this liquidity position, because exports are falling and private sector credit growth is in a downward trend.
"We have to increase private sector credit growth to achieve above 8 percent GDP growth. Let us see how long this liquidity position remains in the comfort zone," he added.
The sales of savings instruments declined by 92 percent in first two months of the current fiscal year after the government increased tax at source on savings instruments up to 10 percent in the budget.
The excess liquidity in the banking sector increased in June amid rising deposit growth, central bank data shows.
Total excess liquidity increased by 34 percent to Tk85,600 crores in June from Tk63,800 crores in March.
Despite improvements in liquidity position, private banks could not implement the single digit interest rate in line with the government's instruction.
Only government banks are lending at single digit interest rates. As a result, good borrowers are switching to state-owned banks from private banks to avail low cost funds, said industry insiders.
When state-owned banks are lending at 9 percent interest rate, private banks are offering loans at above 11 percent, causing slow growth in private sector credit growth, they said.
Private sector credit growth remained steady at 10.66 percent year-on-year in September, which is not enough for achieving the government's ambitious GDP growth target.
The good inflow of dollar, backed by rising remittance earnings, turned the current account balance positive during the July-August period of the current fiscal year, from the negative zone in the same period last year.
The current account balance stood at $313 million during the first two months of the current fiscal year, which was negative $7 million during the same period last year, according to central bank data.
However, fall in import by 1 percent during the same period has raised concerns among bankers about continuation of the comfortable liquidity position in the future, according to industry experts.