People are increasingly opting for keeping cash, which is a major concern in this era of digital banking as it indicates a lack of trust in banks, said Bangladesh Bank Governor Abdur Rouf Talukder yesterday. 

Banks have to find the reasons behind people opting to keep cash with themselves, the governor said at a meeting with chief executives of lenders at the BB headquarters in the capital.

The amount of cash going around has increased 2 percent to 3 percent in recent times, which the BB governor found to be very concerning, Selim RF Hussain, chairman of the Association of Bankers, Bangladesh (ABB), told journalists after the meeting.

"We discussed about the issue as the money that was going out of the banks will have to return to the banking sector because this represents a lack of depositors' confidence," he said.

"We all have to work together to bring back the confidence of customers," said Hussain, also the managing director and CEO of Brac Bank.

Officials of the BB also acknowledged that people were opting to retain more cash as their trust on banks and financial institutions was deteriorating for a lot of irregularities committed by some banks.

On the other hand, deposits of small and medium amounts have been withdrawn in recent months as savers continue to struggle to meet their living expenses due to inflationary pressure.

Average inflation stood at 9.69 percent in July, slightly lower than the 11-year high of 9.94 percent in May.

The amount of cash outside the country's banks soared to Tk 263,373 crore in April, which was at Tk 254,668 crore in March 2023, as per the BB data.

The ABB head also said the negative financial account was the biggest challenge for now.

But the governor assured that the central bank will try to resolve the issue within this December by working with stakeholders, he said.

Financial account is a component of the country's balance of payments that covers claims or liabilities to non-residents concerning financial assets. Its components include foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investment and reserve assets.

The financial account deficit stood at $2.1 billion at the end of fiscal year 2022-23, whereas it was a surplus of $15.5 billion a year earlier, as per data of the BB.

The financial account had been in the positive over the last couple of years.

Non-performing loan (NPL) management is another big challenge, said Hussain, adding that this legacy of the past 20 years to 30 years cannot be improved overnight.

The NPLs amounted to Tk 131,620 crore in March, marking a 16.02 percent increase year-on-year, showed the BB data. It was 8.80 percent of the total credit disbursed by the banking sector.

The BB governor directed banks to increase monitoring to prevent over-invoicing and under invoicing in imports and exports, said Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque.

The governor also directed banks not to use a rate higher than that fixed by Bangladesh Foreign Exchange Dealers Association (BAFEDA) for trading taka with US dollars, he said.

"If needed, we will take legal action against banks which are using a higher exchange rate," he said.

Some banks are not providing correct information to the central bank, said a private commercial bank's chief executive officer, requesting anonymity.

Moreover, some, including a few Shariah-based ones, are unable to maintain the minimum cash reserve as stipulated by the central bank due to a liquidity crisis, he added.

The BB governor asked the lenders to improve their financial health.