Cash surge outside banks ahead of the election

Cash held outside the formal banking system in Bangladesh surged sharply in January, reflecting mounting public caution over banks and a spike in withdrawals ahead of the national election scheduled for 12 February.

Data from Bangladesh Bank indicate that currency outside banks increased by Tk 40,982 crore over a two-month period, climbing to Tk 3,10,000 crore at the end of January from Tk 2,69,018 crore in November 2025.

Banking insiders attribute much of the surge to election-related spending. As campaign activities intensified nationwide, candidates increasingly relied on cash to meet operational and promotional expenses, driving withdrawals from banks to unprecedented levels. “This pattern is typical in pre-election periods, when cash transactions rise sharply across the economy,” a senior banker noted.

At the same time, broader public unease over the banking sector has contributed to withdrawals. Concerns over weak balance sheets, the safety of deposits, and ongoing mergers have prompted depositors to hold funds in cash. Bangladesh Bank has already sanctioned the merger of five troubled shariah-based banks and is reviewing the asset quality of another 11 institutions as part of a broader sectoral clean-up.

Bankers say fears intensified after the central bank capped profit rates on all types of deposits at the five merged banks at 4 per cent, sparking fresh uncertainty among depositors.

The January surge follows several months of easing pressure on cash holdings outside banks. From July to November 2025, currency outside banks had declined steadily as liquidity conditions improved and depositor confidence showed signs of recovery.

To tighten oversight, the Bangladesh Financial Intelligence Unit directed banks and financial institutions on 11 January to report any deposit or withdrawal of Tk 10 lakh or more in a single day. This requirement covers all forms of cash transactions, including over-the-counter operations, ATM withdrawals, and cash-linked online transfers.

Additionally, Bangladesh Bank has planned temporary restrictions on digital financial services during the election period. Mobile financial platforms such as bKash, Rocket, and Nagad may face daily transaction limits of Tk 10,000, with a maximum of Tk 1,000 per individual transaction. Person-to-person transfers via internet banking could be suspended from 8 to 13 February.

Underlying these developments, the sector has struggled with structural weaknesses. Non-performing loans rose to Tk 6.44 lakh crore in September 2025 from Tk 4.20 lakh crore in March, highlighting deep-seated fragilities. Meanwhile, rising living costs have reinforced the shift toward cash; the Bangladesh Bureau of Statistics reported overall inflation at 8.49 per cent in December, up from 8.29 per cent in November.

As Bangladesh approaches the national election, the interplay of political, economic, and structural banking concerns appears to be reshaping liquidity patterns in the economy, with cash outside banks hitting record highs.