State banks are now facing a new crisis: an
increasing mismatch between their credit and deposit growth.
The banks’ deposit growth increased 18.14 percent year-on-year on August 1 but their credit growth dropped 0.39 percent in that time, according to central bank statistics.
Declining credit growth is bad news for banks, as it means their main method of revenue, which is interest earnings on the capital they lend out, is shrinking.
Zaid Bakht, a director of Sonali Bank, said loan disbursement is on a declining trend due to the ongoing political situation. “The bank officials are also more cautious in disbursing loans following the recent financial scams.”
If the increasing deposit cannot be invested, it may hamper the bank’s profitability, he said.
The reason for the deposit growth is the high public confidence, despite the state-owned banks’ deteriorating financial health, the World Bank said. The WB team estimated the banks’ total capital shortfall to be in the order of Tk 17,200 crore.
“It seems that these banks continue to enjoy the confidence of the general public and of most of the financial institutions within and outside the country,” it said in the draft aide memoire submitted to the government last month.
Bakht, also the research director of Bangladesh Institute of Development Studies, said although irregularities took place in the state banks in recent times, the general people still believe that depositing money in them is safe and their savings will remain protected.
“The general people prefer to deposit in the state-owned banks even if the rate of interest is lower than the private banks’.”
Another reason for the state-owned banks’ mounting deposits, says Zahid Hossain, lead economist of the WB’s Dhaka office, is their wide reach, particularly in rural areas.
“The savings of rural people are on the rise due to the increase in remittance inflow—and they deposit them in the state-owned banks.”
With the looming possibility of profitability losses, the four banks’ top management are asking their branches to increase their loan disbursement,
with credit disbursement targets on way as well, officials said.
“Otherwise, we will have to face losses,” said a high official of Sonali Bank, adding that the board did not receive any “term lending” proposal in the last 10 months.
But Hossain says pressuring the branch level management would not be wise as they may not scrutinise the loan proposals appropriately.
“The state-owned banks will have to operate on a commercial approach basis.”
Meanwhile, the WB noted that in the backdrop of fall in investments and decrease in demand for loans,
the state-owned banks have once again become net lenders of liquidity in the interbank call money market. And, according to central bank statistics, the state-owned banks are, in fact, the major lenders in the call money market.
Three state-owned banks lent around Tk 3,000 crore on September 12 in the call money market, of which Sonali Bank alone lent Tk 1,500 crore.