A sharp deposit growth and lower investment regime could hardly help heal persistent liquidity stress in Bangladesh's banking sector as several seepage factors keep squeezing the vaults, sources say.
Officials and bankers mention the depreciation of the local currency against the US dollar, NPL buildup under a lenient loan-rescheduling regime and higher government borrowing from the banking system following a contractionary stance on money supply among the matters sapping liquidity of the banks.
On the other side, receding remittances and export receivables in the supply chain of funds are also prompting squeeze in the liquidity stock of the banks.
The liquidity tightness in the banks has deepened, as the excess liquidity as well as the cashable funds in banks' vaults keep drying up because of a record purchase of the US dollar from the Bangladesh Bank (BB)-managed foreign-currency reserves to meet their overseas-payment obligations and growing investment in government securities on higher bets.
"The growing pressure on the liquidity management has prompted the commercial banks to go for aggressive fundraising through the borrowing windows of the central bank and interbank platform," one of the sources said.
As a result, the call-money rate continues rising, hitting nearly 8.20 per cent, while the volume of liquidity supports by the Bangladesh Bank (BB) to stabilise balance sheet of the fund-strapped banks reached a record high.
According to BB statistics, the excess liquidity in commercial banks dropped to Tk 1.64 trillion in September from August count of Tk 1.74 trillion. In July 2023, the volume of surplus credits was recorded at Tk 1.81 trillion.
Excess liquidity includes various cash and cash- equivalent assets, including treasury bills and bonds, along with cash reserves other than liquid assets.
The cashable funds available in the banks' vaults have also been falling fast, declining to Tk 307 billion at the end of September. The volumes of cash money were recorded at 331 billion and Tk 392 billion in August and July respectively.
As the liquidity management in the banking sector comes under immense pressure, liquidity supports to stabilise balance sheet of the fund-hungry banks keep ballooning.
The central bank provided liquidity support amounting to Tk 1.28 trillion in July 2023. The uptrend in handing out credits to the banks continues as the entire monthly volume of the liquidity supports ballooned to Tk 1.33 trillion in August, Tk 1.67 trillion in September and Tk 3.12 trillion in October.
Seeking anonymity, a BB official said deposits of the banking system grew by 9.50 per cent year on year in September while private-sector credit growth continues shrinking to stand at 9.69 per cent in the same month.
"Despite the facts, the banks are now facing liquidity pressure mainly because of higher NPLs (non-performing loans) and BB's 'devolvement'-skipping decision. Now, the banks are fully meeting government's domestic bank- borrowing requirements," the official said.
The central banker said the BB as part of its inflation-combating steps recently raised the policy rate to 7.25 per cent to squeeze the money flow on the money market. "And now it is being reflected in the liquidity situation of the banks."
Managing director and chief executive officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman says commercial banks are now going through liquidity tightness because of multiple factors, like higher NPL, huge dollar purchase from the central bank and no 'devolvement'-meaning currency printing-by the BB in recent times.
He said a key part of the assets in the banking industry is not performing and remained stuck because of the NPL while the banks are spending a good volume of credits to buy dollars from the BB to settle their overseas-payment obligations.
At the same time, Mr Rahman said, the central bank earlier used to meet major share of the government domestic bank-borrowing requirements through devolvement mechanism to lessen liquidity stress on banks. But, recently, the BB stepped away from the move to contain inflation and pass on the bank-borrowing appetite to the banks.
"All these factors are contributing to the reduction in liquidity. If the BB stops supporting liquidity, the tightness might get more severe," the experienced banker alerts.
According to the official data, banks' monthly dollar-purchase investment was recorded at Tk 125 billion, equivalent to $1.147 billion, in July, Tk 126 billion ($1.154 billion) in August, Tk 106 billion ($0.966 billion) in September and Tk 132 billion ($1.198 billion) in October.
Alongside dollar purchase from BB, NPL and government bank- borrowing stress, managing director and CEO of Dhaka Bank Limited Emranul Huq mentions that the inflow of remittance and import orders have gone down in recent times while timely repatriation of export receipts is not happening in many cases.
"These are creating more pressure on the liquidity situation. Under such liquidity stress, we need to carry out our banking proceedings in a very careful and cautious way to avert any serious liquidity-related trouble," Mr Huq said.
Seeking anonymity, the top executive of a private commercial bank said the liquidity situation in the banking channel is getting squeezed because of BB's contractionary- policy stance to contain higher inflation.
As the economy has been facing dollar crisis for a longer period of time, he said, the greenback is coming into the country through non-banking channels.
Despite the higher NPLs, the experienced banker said, the banking regulator relaxed the policy for the rescheduling of default loans, which is "very unfortunate" and puts more pressure on the liquidity.
Earlier, the loan defaulters would need to pay 10-percent down payment of the total overdue loans to get rescheduling facility. Now, the defaulters can get the facility by only paying 2.50-percent down payment, according to him.
Sources at Bangladesh Bank (BB) have said the overall NPLs plummeted to 9.93 per cent or Tk 1.55 trillion of the total outstanding loans that stood at Tk 15.65 trillion as of September 2023.
But bankers said the actual size of the stress assets in banks would be much higher than the NPL amount if the volumes of loan rescheduling and write-offs are taken into account.
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