Bangladesh Mattress Money Swells to Tk 3.36 Trillion Amid Fragile Bank Confidence

The Financial Express, Dhaka — The amount of cash held outside Bangladesh's banking system continued to rise in June 2026, signalling a growing preference for physical money at a time when economic activity remains subdued and confidence in banks has yet to fully recover — a structural concern that has implications for both banking sector liquidity and broader monetary policy effectiveness.

Currency in circulation outside banks, often dubbed "mattress money", rose to Tk 3.36 trillion at the end of June 2026, up 13.5 percent from Tk 2.96 trillion a year earlier, according to Bangladesh Bank data.

📊 Mattress Money Trajectory

The increase means an additional Tk 400 billion was held outside the formal banking channel over the year, potentially putting further pressure on banks' cash positions as demand for withdrawals remains elevated. The historical trajectory:

• 💰 June 2025: Tk 2.96 trillion
• 💰 January 2026: Tk 2.83 trillion
• 💰 February 2026: Tk 2.86 trillion
• 💰 March 2026: Tk 3.03 trillion
• 💰 June 2026: Tk 3.36 trillion
• 📊 YoY growth: +13.5 percent (Tk 400 billion)
• 📊 Q1 2026 growth: +10.9 percent in just three months (March to June)

The latest figure also represents a sharp increase from Tk 3.03 trillion recorded in March, with cash outside banks rising by around 10.9 percent in just three months — an acceleration that reflects intensifying depositor anxiety through Q2 2026.

👥 Why Depositors Are Holding Cash

People familiar with the development said banks were continuing to face pressure on their vault cash as customers preferred holding physical money rather than keeping funds as deposits. The key drivers of mattress money accumulation include:

• 🏛 Banking sector leadership changes — unexpected change of leadership at the banking regulator
• 📜 Legal instrument amendments — amendments to relevant banking legal framework
• 🏛 Sammilito Islami Bank merger — 5-bank consolidation under Bank Resolution Ordinance 2025
• 🏛 NPL concerns — 86% NPL ratio in merged Sammilito bank loans
• 🏛 Depositor withdrawal restrictions — limits on Sammilito deposit access
• 💰 Islamic banking deposit contraction — -1.07% YoY in June 2026
• 💰 Islamic finance shift — depositors moving to conventional banks' Islamic windows

Such developments have contributed to uncertainty and encouraged some depositors to hold more cash outside banks, they added — reflecting a broader pattern of depositor risk aversion following the 2024 banking sector revelations.

📊 Money Supply Context

The rise in cash holdings came as overall money supply expanded at a comparatively slower pace:

• 💰 Broad money (M2) June 2026: Tk 24.16 trillion
• 💰 Broad money (M2) June 2025: Tk 21.74 trillion
• 📊 M2 YoY growth: +11.11 percent
• 📊 Mattress money YoY growth: +13.5 percent
• 📊 Growth differential: +2.4 percentage points (mattress money faster)

This means currency outside banks grew about 2.4 percentage points faster than broad money during the period, indicating that the increase in physical cash holdings outpaced the expansion of the overall money supply — a structural shift that has implications for monetary policy transmission.

🏛 Implications for Banking Sector Liquidity

The Tk 3.36 trillion in mattress money has significant implications for banking sector liquidity:

• 💰 Reduced deposit base: Tk 400 billion less in bank deposits YoY
• 💰 Excess liquidity pressure: weak credit demand compounded by deposit outflow
• 💰 Cost of funds: banks need to offer higher deposit rates to attract funds
• 💰 Lending capacity: reduced deposit base constrains bank lending
• 💰 BB liquidity support: central bank may need to provide more liquidity

The combination of mattress money growth and weak private sector credit demand (4.47 percent YoY growth — lowest in country's history) has created a structural liquidity paradox: banks have excess liquidity but lack creditworthy borrowers, while depositors prefer cash over bank deposits.

📊 Strategic Context: Banking Sector Stress

The mattress money surge comes amid broader strategic context:

• 📊 Sammilito Islami Bank merger: 5 banks consolidated, 10,000 recovery cases filed
• 📊 Islamic banking deposits: fell to Tk 3.9 lakh crore (June 2026) from Tk 4 lakh crore
• 📊 Conventional banks Islamic windows: Tk 78,000 crore (doubled from Tk 37,000 crore)
• 📊 BB net profit FY26: Tk 25,977 crore (paradoxically high due to liquidity support)
• 📊 Government bank borrowing: Tk 165,538 crore (exceeding target by Tk 47,538 crore)
• 📊 Investment confidence missing: Birupaksha Paul assessment (separate DS report)

Together, these dynamics reflect a banking sector in transition — with depositors, borrowers, and regulators all adjusting to the post-2024 political transition and the ongoing banking sector clean-up.

💰 Monetary Policy Transmission Impact

The Tk 3.36 trillion in mattress money has significant implications for monetary policy transmission:

• 💰 Reduced policy rate effectiveness: cash outside banks doesn't respond to rate changes
• 💰 Money multiplier decline: lower deposit base reduces banking system money creation
• 💰 Inflation management challenge: cash holdings don't earn interest, reducing inflation pass-through
• 💰 Cash management costs: physical cash handling creates operational costs
• 💰 Informal economy expansion: cash transactions support informal sector growth

🌏 Strategic Implications

The mattress money surge carries several strategic implications:

• ⚠️ Tk 3.36 trillion outside banks: massive cash holding reflects fragile confidence
• ⚠️ 13.5% YoY growth: mattress money growing faster than broad money
• ⚠️ Banking sector leadership uncertainty: changes at banking regulator
• ⚠️ Sammilito merger impact: deposit access restrictions fuel cash preference
• ⚠️ Monetary policy transmission weakened: reduced policy rate effectiveness
• ⚠️ Banking sector liquidity paradox: excess liquidity but weak credit demand
• ⚠️ Informal economy expansion: cash transactions support informal sector
• ✅ Islamic finance shift: depositors moving to conventional banks' Islamic windows
• ✅ September 7 payout: Sammilito depositor access may restore some confidence

The Tk 3.36 trillion mattress money represents a strategically important indicator of depositor confidence in Bangladesh's banking system — with the 13.5 percent YoY growth reflecting continued fragility despite the government's broader banking sector reform efforts. Restoring depositor confidence to bring mattress money back into the formal banking system will require sustained progress on banking sector governance, deposit access normalisation (particularly at Sammilito Islami Bank from 7 September), and broader macroeconomic stabilisation through the LDC graduation transition period beginning November 2026. Without confidence restoration, the mattress money trend is likely to continue — constraining the banking system's capacity to support credit growth and economic recovery through the post-graduation period.