Bangladesh’s banking sector is witnessing a notable recovery in depositor confidence, with total deposits growing at a steady pace in recent months. Yet, the country’s economy faces a growing threat from a persistent decline in private sector loan growth-raising concerns among economists about stalled investments, job creation, and long-term development.
Deposit Growth Signals Restored Public Confidence: According to data released by Bangladesh Bank, deposits in the country’s banking sector-excluding interbank and government deposits-stood at Tk 17,92,685 crore in February 2025. This marks a 7.9% rise compared to Tk 16,61,649 crore in the same month last year.
The gradual upward trend has been consistent in recent months: 8.28% in January, 7.44% in December, 7.46% in November, 7.28% in October, and 7.26% in September. Monthly deposit volumes have risen by more than Tk 10,000 crore on average, underscoring the sector’s recovery from a period of severe volatility and public distrust.
Bankers and analysts credit the shift to improved political stability after the fall of the Awami League government on August 5, 2024. The formation of a new administration has eased tensions and restored faith in financial institutions, which had been rocked by scandals involving aggressive insider lending and politically connected business groups.
“Public confidence was severely shaken by rampant irregularities in private banks, especially those linked to powerful conglomerates like the S Alam Group,” a senior official from a leading commercial bank said. “After the political transition, people are once again seeing banks as safe places to keep their money.”
Liquidity Support and Higher Interest Rates Attract Depositors: In response to the crisis, the central bank injected more than Tk 30,000 crore into six struggling banks since October 2024 to support liquidity and stem panic withdrawals. The liquidity infusion, combined with a rise in deposit interest rates, has attracted savers back into the system.
Currency held outside banks dropped to Tk 2.71 lakh crore in February from Tk 2.74 lakh crore in January and Tk 2.76 lakh crore in December. Of the total deposits in February, Tk 16 lakh crore was in time deposits, while Tk 1.90 lakh crore was in demand deposits-indicating a strong inclination toward fixed-term savings.
Central bank officials say structural reforms are being initiated to ensure lasting stability. These include stricter oversight rules, revisiting controversial bank mergers, and disciplinary action against willful defaulters. But economists warn that unless deep-rooted issues such as non-performing loans and political interference in loan approvals are addressed, the recovery may remain fragile.
Loan Growth Slips Despite Stable Credit Disbursement: While deposit figures show a positive trend, private sector loan growth is steadily weakening-signaling waning investment appetite and a broader economic slowdown.
Bangladesh Bank data shows private sector credit growth dropped to just 6.82% in February 2025, significantly lower than the 10.13% recorded in February 2024. In January, it was 7.15%.
This marks a sharp contrast with total credit disbursement trends, which have continued to climb. Loans rose to Tk 22 lakh crore in February, up from Tk 21.89 lakh crore in January and Tk 21.77 lakh crore in December. However, much of the new lending has gone to public sector entities and refinancing of existing obligations, not new private investments.
High Borrowing Costs Discouraging Investment: Industry insiders cite soaring borrowing costs as the primary reason for the decline in private credit growth. Over the past year, interest rates have jumped from 11-12% to 15-16%, largely due to Bangladesh Bank’s decision to maintain a high policy rate of 10% to curb inflation.
“The cost of funds has gone up significantly due to the central bank’s inflation-containment measures,” said Syed Mahbubur Rahman, managing director of Mutual Trust Bank. “As a result, banks are charging higher lending rates, which are discouraging entrepreneurs from making new investments.”
This rise in borrowing costs has particularly affected the import of capital machinery, a critical indicator of industrial expansion. According to BB data, capital machinery imports fell by nearly 30% in the first eight months of the current fiscal year. Letter of Credit (LC) settlements dropped by 25.22%, with just $1.15 billion worth of capital machinery imports registered by February.
Investment Slowdown Sparks Alarm: Dr Mostafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said the continued fall in capital machinery imports and loan growth is a serious concern for long-term industrial growth.
“Capital machinery is essential for new industrial units,” he noted. “Without fresh investment, private sector loan growth will remain sluggish, and employment generation will suffer.”
Former Pubali Bank MD Mohammad Ali echoed the sentiment, adding that political instability earlier in the fiscal year made investors hesitant to embark on new ventures. “Until investors regain confidence in the stability of the business environment, demand for credit will remain subdued,” he said.
Employment Generation in Peril: Economists warn that stagnating investment has begun affecting the country’s labor market. Bangladesh Bureau of Statistics (BBS) estimates that 2-2.2 million people enter the labor force annually, but only 1.4-1.5 million jobs are being created-leaving 600,000 to 800,000 new entrants unemployed every year.
Official unemployment stands at 2.7 million, but analysts estimate the real figure has crossed 10 million due to underemployment and informal sector displacement.
A World Bank report published in early 2025 projects that the national poverty rate could rise to 22.9%, while extreme poverty could reach 9.3% by the end of the year if the employment crisis continues. The report also stated that nearly 4% of workers lost jobs in the second half of 2024. Real wages have declined for 40 consecutive months, worsening the financial strain on low-income families.
Shrinking Real Wages and Rising Inequality: Wages for low-skilled workers dropped by 2% and for high-skilled workers by 0.5% in the second half of 2024. Three out of five households are now dipping into their savings to meet daily expenses, eroding future financial security.
The dominance of the informal sector and the scarcity of secure, high-productivity jobs have contributed to widening income inequality. “Without a strong push for investment, particularly in labor-intensive sectors, the employment and wage situation will continue to deteriorate,” warned Dr Rahman of CPD.
Policy Outlook and Structural Reforms: Despite the gloomy outlook for loan growth and investment, Bangladesh Bank remains committed to its inflation-fighting stance. Governor Dr Ahsan H Mansur recently stated that the 10% policy rate would remain in place until inflation shows a “sustained downward trend.”
This, however, has made achieving private sector credit targets more difficult. The revised target for private sector loan growth in the first half of FY25 was set at 9.80%, but actual growth is already well below that.
Experts argue that the current policy mix may need recalibration. “Tight monetary policy is necessary to control inflation,” said economist Dr Zahid Hussain. “But we must also ensure that it doesn’t choke off productive investments that are crucial for growth and job creation.”
What’s at Stake: The effects of declining private loan growth are far-reaching: Employment Crisis: With 600,000 to 800,000 new entrants to the job market each year going unabsorbed, unemployment is rising steadily.
Rising Poverty: The World Bank warns that continued joblessness and inflation could drive poverty rates to dangerous levels by year-end.
Stunted Economic Growth: Without robust private sector investment, GDP targets and aspirations to graduate to a middle-income country by 2031 could be jeopardized.
Investor Apathy: High interest rates, policy uncertainty, and lingering fears over political and financial stability continue to deter new entrepreneurs.Final Thoughts: Bangladesh’s banking sector has regained depositor trust, thanks to political change, central bank intervention, and higher interest rates. But the steady decline in private sector loan growth has emerged as a pressing economic threat.
Without urgent reforms to reduce borrowing costs, incentivize investment, and ensure stability in both policy and politics, the country risks slipping into a cycle of low growth, high unemployment, and rising inequality. As the country stands at a crucial economic juncture, policymakers face the delicate task of balancing inflation control with investment revival-both of which are essential for sustainable and inclusive growth.
