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Bank & Finance - April 23, 2024

Depositors fearing bank mergers

Withdrawing savings

Mahfuja Mukul : Panic has spread throughout the banking sector over the merger of strong with weak banks. Especially the depositors are suffering from the dilemma of whether or not to keep money in the bank. Many savers are withdrawing money from banks fearing that they will not get money if the banks merge.
As a result of which, even after the increase in the interest rate on the deposits, there was a sudden decline in the growth of bank deposits in the month of February.
And from the working day after the announcement of the merger of Exim Bank with Padma Bank on March 14th, it has been noticed that withdrawal of money from those two banks as well as other banks has been noticed. According to the concerned persons, the central bank has moved away from the decision of new bank merger to deal with the pressure of money withdrawal subject to the monitoring of the situation.
According to the inquiry in the bank, on March 14, Bangladesh Bank announced the merger of Padma Bank with Exim Bank, which is managed on the basis of Islamic Sharia.
The next working day (March 18) the merger formalities began with the signing of a Memorandum of Understanding (MoU) between the two private sector banks. After the commencement of the merger process, panic among the depositors increased. As a result of which both Padma and Exim banks have been seen to withdraw money from the bank. Especially since the day of signing the agreement, the depositors have been flocking to the various branches of the two banks.
According to the latest data of Bangladesh Bank, after the increase in the deposit interest rate, the growth of the bank’s deposit collection in the month of February stood at 10.43 percent. In the previous month of January, the growth was 10.57 percent. It has decreased by 41 percent in one month. And in February, the bank’s interest rate on deposits was 10.05 percent. The average bank interest rate against deposits was 9.75 percent in January, the previous month. Generally, an increase in the interest rate on deposits leads to an increase in bank deposits. A review of the figures for these two months shows that despite the increase in interest rates, the growth of bank deposits has remained tight.
In this regard, the former chief economist of the Dhaka office of the World Bank Zahid Hossain told that if the interest rate increases against the bank deposits, usually the deposits increase. However, if there is any uncertainty among the customers about getting the deposit money back, then those customers will want to withdraw the money from the bank even if the interest rate increases. There are reasons for the sudden decline. Especially after the increase in interest rate, the reason for the decrease in the growth of deposits in the bank may be the fear among the customers of the bank merger. But it can wait more to be 100% sure. And after the announcement of the merger of Padma Bank and Exim Bank, the fact that the two banks were forced to withdraw money came up in the media. Apart from this, although it is not certain that the bank deposits have decreased due to the merger of 10 banks, it cannot be ruled out that it has had a big impact.
According to Bangladesh Bank, the deposit interest rate was 10.05 percent last February. And in February 2023, it was 6.86 percent. Last July was 9.67 percent. As of the next month, August is 10.17 percent. 9.51 percent in September, 9.80 percent in October, 10.33 percent in November, 11.04 percent in December and 9.75 percent in January.
According to the data of Bangladesh Bank, the deposit growth in the banking sector was 10.43 percent last February. And in February 2023, the growth of bank deposits was 6.86 percent. Again, in January this year, the growth of bank deposits was 10.57 percent. 6.14 percent in the same month of the previous year. The growth of bank deposits was 9.67 percent in July, 10.17 percent in August, 9.51 percent in September, 9.80 percent in October, and 10.33 percent in November.
Executive Director and Spokesperson of Bangladesh Bank Majbaul Haque said, there is nothing to panic about the merger. Banks will be consolidated with the protection of all depositors’ money. Besides, bankers will get job protection as per the policy. And for the time being, new applications for mergers outside the five banks will not be accepted. This is the decision of the central bank.

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