Banks Collect More Deposits, but Lending Barely Grows

Bangladesh’s banking sector is once again collecting deposits from customers, but banks are not converting that money into loans at the same pace, raising fresh concerns about the health of credit and investment in the economy.

Deposits with scheduled banks rose by Tk52,419 crore, or 2.43 per cent, in the April-June quarter to Tk22.10 lakh crore, according to the latest Bangladesh Bank statistics released on Monday.

But loans and advances increased by only Tk24,818 crore, or 1.39 per cent, to Tk18.09 lakh crore.

Banks increased their investments by Tk76,800 crore, or 11.45 per cent, to Tk7.47 lakh crore during the same three months.

So, banks increased investments by more than three times the amount by which they increased lending.

The figures show a banking system that is increasingly cautious about lending even as deposits recover.

The problem becomes clearer when the annual numbers are compared.

Bank deposits grew 10.71 per cent year-on-year in June, compared with 8.58 per cent a year earlier.

But loans and advances grew only 4.30 per cent, sharply down from 8.58 per cent a year earlier.

In other words, deposit growth has accelerated while credit growth has almost halved.

This is bad news for an economy that needs private investment, business expansion and new jobs to recover.

The lending slowdown is also continuing despite lower borrowing costs.

The weighted average lending rate fell to 12.13 per cent in June from 12.28 per cent in March and 12.33 per cent a year earlier.

This suggests that the problem is no longer simply that loans are expensive. Banks are facing weak demand from financially sound borrowers, while borrowers and banks remain cautious because of the wider economic and banking-sector risks.

The latest data also show that credit is not reaching all parts of the economy equally.

Trade loans increased by Tk22,840 crore, or 4 per cent, to Tk5.94 lakh crore.

But term loans rose only 0.48 per cent to Tk4.51 lakh crore. Working-capital loans fell 0.47 per cent to Tk3.44 lakh crore, while construction loans declined 3.17 per cent.

That means the modest increase in lending is being driven largely by trade rather than a broad recovery in productive investment.

Private-sector credit increased by Tk30,852 crore, or 1.78 per cent, during the quarter.

But even that growth is weak compared with the pace of deposit mobilisation.

The gap matters because banks traditionally turn deposits into loans and earn their main income from lending. When deposits rise much faster than loans, banks have to find other places to park the money.
Investment in securities rose sharply during the quarter, while lending remained sluggish.

At the same time, banks' borrowing from Bangladesh Bank increased by Tk39,217 crore, or 20.69 per cent, to Tk2.29 lakh crore.

This makes the picture even more uncomfortable: the banking system is simultaneously seeing stronger deposits, weak credit growth, sharply higher investment and increased borrowing from the central bank.

Bangladesh Bank data reported separately this week showed the banking sector's provision shortfall rising to Tk2.22 lakh crore in June, from Tk1.98 lakh crore in December 2025. The capital shortfall of 21 banks had already reached nearly Tk2.94 lakh crore in March.

A banker said the banking sector is now facing a difficult cycle: weak economic activity reduces demand for good loans, while the rise in bad loans makes banks more cautious about taking fresh risks.

“Banks cannot simply push money into the market. They need borrowers with strong cash flow and repayment capacity,” he said.

The latest statistics also show that the banking business remains heavily concentrated in Dhaka.

Dhaka accounted for about 60.6 per cent of deposits and 67.8 per cent of loans at the end of June, highlighting the continuing concentration of formal credit in the capital.

For Bangladesh Bank, the latest figures create a difficult policy challenge.

Lowering interest rates can make credit cheaper, but it cannot by itself force businesses to borrow or banks to lend.

The central bank is now also tightening its focus on bank management and financial health. It has introduced six-monthly performance reviews of bank managing directors and CEOs based on indicators including non-performing loans, capital, liquidity, governance and profitability.