The excess liquidity in the banking sector has fallen by Tk 14.56 billion, or 13.49 per cent, to Tk 93.37 billion over a period of past four months, ending on April 30, 2008, due to higher credit growth particularly in the private sector, officials said.
Some banks have resorted to aggressive banking with a view to keeping the volume of classified loans within a limit of five per cent of the outstanding loan by increasing disbursement of fresh credit during the period.
Such aggressive banking was carried out by some banks mainly to keep their position at satisfactory level as far as their CAMEL rating is concerned, senior officials of a number of private and public commercial banks confirmed.
The Bangladesh Bank (BB) now finds the performance of a commercial bank as satisfactory in terms of CAMEL rating if the bank is able to keep the size of non-performing loan (NPL) within five per cent of its total outstanding loan.
"We consider the performance of a bank as 'strong' if the percentage of its classified loan remains within three per cent and satisfactory if the percentage remains within five per cent," a BB senior official told the FE.
He also said the banks should maintain the ratio by increasing recovery of bad loans, not through disbursements of fresh loans.
At least 19 banks out of 48 had over five per cent classified loan against their respective outstanding loans as on March 31 last, according to the central bank statistics.
On the other hand, the overall demand for credit has pushed higher the prices of essential items, including food grains.
"The demand for fresh loans increased significantly but the growth of deposit was not satisfactory level resulting in decline in the size of excess liquidity in the banking system," a senior official of a private commercial bank told the FE.
In some cases, the banks concerned faced liquidity shortfall and they met their internal liquidity demand through overnight borrowing from money market, he observed.
But the situation improved significantly following the release of a large amount of fund by the government by the end of the just concluded fiscal, he said, adding that the inter-bank call money rates also came down between 3.50 per cent and 10.00 per cent Thursday from 8.0 per cent and 20.00 per cent previously.
The amount of excess liquidity of all commercial banks dropped to Tk 93.37 billion as on April 30 from Tk 107.93 billion in December, 2007, the BB's data showed.
The huge amount of excess funds have already been invested in different sectors like bond market, treasury bills, agriculture credit and industrial term loans during the period to meet the country's overall credit demand, the central bank official said.
According to statistics, the excess liquidity of the state-owned banks (SCBs) stood at Tk 19.87 billion as on April 30, 2008, while that of the private commercial banks (PCBs,) was at Tk 43.58 billion. The excess liquidity of the foreign banks was Tk 17.97 billion at the same time.
However, the country's private sector credit grew over 23.11 per cent in July-April period of the fiscal 2007-08 compared to same period of previous fiscal.
