Entrepreneurs are showing little interest in investing at higher interest rates, while small investors are staying away from the capital market for fear of losses. At the same time, banks are offering higher interest on deposits to curb inflation. Taken together, people now see keeping money in banks as safer and more profitable than holding cash or making investments.
This trend is reflected in the latest report by Bangladesh Bank, which notes a growing tendency among people to deposit money in banks rather than keeping it in cash. As a result, alongside investment stagnation, the volume of idle money in the banking system is also increasing. Bangladesh Bank data show that the amount of cash held outside banks has declined significantly.
In June 2025, currency outside the banking system stood at Tk296,452 crore. By the end of September 2025, the figure had fallen to Tk274,724 crore.
During this three-month period, cash outside banks declined by 7.32 per cent, amounting to Tk21,727.7 crore.
In effect, this substantial volume of cash has returned to the formal banking system.
Analysts believe that tighter monetary policy aimed at curbing inflation has reduced both consumption and investment appetite. Amid political instability and a lack of confidence, people are opting to keep their money in banks in the hope of earning higher returns, rather than holding cash. This, however, is narrowing the productive use of money. On the other hand, due to higher policy interest rates, demand for loans has fallen, limiting banks’ ability to channel these funds into investment.
As a result, banks’ operating costs are also rising.
A Bangladesh Bank official said that the gradual restoration of confidence in the banking sector, comparatively attractive interest rates on deposits, and increased monitoring of financial transactions have encouraged people to deposit cash in banks instead of keeping it at home. The growing use of digital transactions and mobile financial services has also contributed to the decline in cash held outside banks.
A reduction in currency outside banks is considered a positive signal for the macroeconomy. On the one hand, it improves banks’ liquidity positions, while on the other, enhanced lending capacity could help revive investment and production activities.
Former World Bank Dhaka office chief economist Dr Zahid Hussain said high inflation, uncertainty surrounding the change of government, and the reconstitution of boards at several banks had earlier prompted people to withdraw money and hold cash. As a result, deposits had fallen at an unusually high rate, while cash outside banks had increased.
“However, due to various initiatives taken by Bangladesh Bank, public confidence in the banking sector has recently begun to return,” he said. “Those who had withdrawn excess funds are now redepositing them, and higher interest rates are also attracting new deposits. But the increase is not very large, as people have been under prolonged inflationary pressure and unemployment is rising, which is reducing their capacity to save.”
He warned that if deposits do not grow, investment will not increase, and without higher investment there will be no rise in employment, income or savings, creating a long-term economic challenge. He emphasised the need for a stable investment environment to boost investment.
Meanwhile, an upward trend in bank deposits has also been observed. According to Bangladesh Bank data, total deposits in the banking sector stood at Tk1,878,170 crore in June 2025. By the end of September 2025, the figure had risen to Tk1,915,253.5 crore—an increase of Tk37,084 crore within three months.
Bangladesh Bank Executive Director and spokesperson Arif Hossain Khan told media that following the change of government, the dissolution of boards at several banks had created a degree of mistrust in the banking sector, prompting people to withdraw money en masse and putting pressure on deposits at the time.
“Bangladesh Bank provided liquidity support to address the situation. But within a year, the picture has reversed,” he said. “Although confidence in some banks has weakened, public trust in the overall banking sector has not declined, as total deposits are increasing and cash held outside banks is returning to the system.”
He noted that deposits had largely shifted from one bank to another, which he described as good news for the sector. “We are working relentlessly to restore good governance in the banking sector. All necessary measures have been taken to prevent money laundering, and multiple initiatives are under way to curb inflation. We therefore hope that general depositors’ confidence in the banking sector will soon be fully restored,” he added.
LND/SAE
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