Bank deposits and loan disbursements dropped in July.

Bangladesh Bank data showed that deposits fell by Tk 8,197 crore, reaching Tk 17,34,026 crore in July (excluding interbank and government deposits), down from Tk 17,42,224 crore in June.

Loan disbursement also decreased by Tk 3,882 crore, totalling Tk 20,85,448 crore in July compared with that of Tk 20,89,330 crore in the previous month.

The decline in both deposits and lending was attributed to the disruptions caused by curfews, protests, and an internet blackout during the month.

The Anti-Discrimination Students Movement, which led protests for reforms in the government job quota system, intensified its activities starting on July 1.

A nationwide curfew was imposed after July 19, bringing banking and business activities to a halt and severely affecting depositors and businesses.

The unrests continued until Sheikh Hasina resigned as prime minister on August 5 and fled to India, ending her 15-year authoritarian rule.

This political turmoil prompted many people to withdraw their money in July, fearing extended unrest and restrictions, bankers said.

They said that some politicians and business figures also kept large sums of money outside banks, anticipating a political shift.

Of the total deposits at the end of July, Tk 15.4 lakh crore was time deposits, and Tk 1.93 lakh crore was demand deposits.

Despite higher interest rates attracting deposits, growth slowed due to rising inflation, tight monetary policy, and increased currency held outside banks, bankers said.

They suggested that inflationary pressures forced people to withdraw funds to cover daily expenses.

The Bangladesh Bureau of Statistics reported that inflation eased slightly to 10.49 per cent in August, down from a peak of 11.66 per cent in July, though it has hovered at 10 per cent since March 2023.

Fixed-income and low-income households have struggled to meet basic needs as prices of commodities continue to rise, leading to increased withdrawals rather than deposits.

Numerous loan irregularities exposed weaknesses in the banking sector that also prompted further withdrawals.

Currency held outside banks surged to Tk 2.91 lakh crore in July, compared with Tk 2.90 lakh crore in June and Tk 2.66 lakh crore in July 2023.

As a result, many banks faced liquidity shortages, pushing the call money rate higher in recent months.

The ongoing dollar crisis has exacerbated the situation, with the Bangladesh Bank selling $34 billion over the past three years, which drained a significant amount of local currency from the financial system.

The interbank currency rate climbed to Tk 120 in August, up from Tk 84.8 in August 2021.