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The overall excess liquidity with the commercial banks decreased slightly in May, following the recent higher credit growth particularly in the private sector, officials said.
The excess liquidity fell by nearly 2.0 per cent to Tk 1.17 trillion in the first week of May from Tk 1.19 trillion two months ago, according to latest statistics of the Bangladesh Bank (BB).
"The amount of excess liquidity has showed a declining trend recently, following increased credit flow to the private sector mainly due to lower interest rates on lending as well as political stability," a senior official of the central bank told the FE on Thursday.
He also said most of the excess liquidity has already been invested in the government-approved securities as a risk-free investment for banks.Â
Besides, excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, came down to Tk 37 billion in May from Tk 39 billion, the BB data showed.
"We expect that the declining trend of excess liquidity with the banks may continue in the coming months, if the existing private sector credit flow persists," another BB official explained.Â
Meanwhile, private sector credit growth has already surpassed the target, set by the central bank in its monetary policy, for the January-June period of the outgoing fiscal year (FY), 2015-16.
The private sector credit growth has already reached 15.59 per cent in April on a year-on-year basis from 15.16 per cent in March 2016. The credit growth was 15.11 per cent in February.
"It may exceed 16 per cent by the end of this month," BB chief economist Biru Pasksha Paul told the FE earlier.
The central bank projected that the private sector credit would grow at 14.8 per cent in June 2016 from 13.8 per cent in December 2015. Â
The total outstanding loans with the private sector rose to Tk 6447.34 billion in April 2016 from Tk 5577.76 billion in the same month of 2015. It was Tk 6364.42 billion in March 2016.
Echoing the BB official, a senior official of a leading private commercial bank said the declining trend of excess liquidity may continue in the coming months, as most of the banks are offering lower interest rates to attract clients, particularly the corporate ones, for utilising their excess funds.Â
"We're now offering short-term lending at 7.0 per cent interest rate to the corporate clients to minimise our cost of fund," the private banker explained.
Besides, a section of corporate clients prefer local currency loan instead of foreign ones to avoid foreign exchange volatility risk, according to the banker.Â
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