In a turnaround from months of cash crunch, excess liquidity in Bangladesh's banking industry began ballooning as aggregate cashable assets of the banks amounted to Tk 1.66 trillion end of June 2023.
The recent surge in deposits but a continuous fall in the demand for credits from the private sector resulted in the growth in excess liquidity in the country's commercial banks, officials and bankers said.
According to the statistics of Bangladesh Bank (BB), the central bank, the volume of excess liquidity in banks was over Tk 2.0 trillion in June 2022. But since then, it kept declining to reach Tk 1.36 trillion in February 2023.
Thereafter, the banking industry sees an upturn in the volume of idle cashable assets. It stood at Tk 1.66 trillion as of June this year, the BB data showed.
Excess liquidity in commercial banks includes various cash and cash- equivalent assets, including treasury bills and bonds, along with cash reserves other than liquid assets.
Excess liquidity refers to the funds that banks hold above and beyond their regulatory requirements for liquidity.
Seeking anonymity, a BB official said the surplus funds in banks started dropping massively in October last year because of mass withdrawal of credits from the bank vaults following large-scale loan-related irregularities.
Simultaneously, commercial banks purchased record volumes of the US dollar from the central bank amid forex dearth to settle their overseas transactions throughout the last fiscal year (FY'23). It put more pressure on the banks' liquidity.
"That's why it was dropping. But things now changed as depositors are coming back to the banking channel with their funds in this time of lower demand for credits. That's the reason behind the increase in excess liquidity," says the central banker.
The BB sold $13.57 billion to the commercial banks in the FY'23, facilitating the lenders to meet their foreign-currency obligations.
When contacted, managing director and chief executive officer of Pubali Bank Limited Mohammad Ali said the country's GDP or gross domestic product continues growing that leads to the rise in people's wealth.
He said the deposit portfolio in the banking sector kept rising in recent times but the demand for capital from the private sector continues falling because of the persisting macroeconomic strains locally and globally.
On the other hand, banks have been participating in the auctions to invest in the treasury bonds placing higher rate but the central bank did not accept their bids. Instead, it purchased the bonds supplying print money to the government accounts.
"These are the major factors behind the rise in the excess liquidity," he adds.
Echoing Mr. Ali's views, managing director and chief executive officer of Social Islami Bank Limited (SIBL) Md Zafar Alam said both banks and the private sector are cautious in proving and taking loans in the current context of the economy.
"The private sector may be waiting to see the macroeconomic situation after the upcoming national polls before putting in any investment," he added.
According to the BB data, the private-sector-credit growth dropped to 10.57 per cent in June compared to the corresponding month last year.
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