The volume of excess liquidity in the commercial banks fell in May after months of growth, putting pressure on overall fund management the money market, according to the latest statistics from the central bank.
The May decline affected not only excess funds but also the volume of uninvested credit held by banks.
Excess liquidity refers to cash and cash-equivalent assets like treasury bills and bonds, along with cash reserves exceeding required liquid assets. Uninvested cash refers to credit available in bank vaults.
The Bangladesh Bank data shows that excess liquidity stood at Tk 1.41 trillion in November 2023. It then rose steadily to Tk 1.53 trillion in January, Tk 1.62 trillion in February, Tk 1.66 trillion in March and Tk 1.76 trillion in April of this year.
The figure dropped to Tk 1.74 trillion in May.
In that month, uninvested excess cash in the banking system declined to Tk 57.78 billion from Tk 84.09 billion in April. Uninvested excess cash in banking was at Tk 76.43 billion in February.
Speaking on condition of anonymity, a Bangladesh Bank official said the liquidity situation in banks might have dipped slightly in May due to increased fund withdrawals to meet expenses for the recent Eid-ul-Azha holiday.
The central bank official said private sector credit growth, on the other hand, reached almost 10.50 per cent -- 10.35 per cent to be exact -- in May. "These factors likely contributed to the decline in overall bank liquidity."
Mosleh Uddin Ahmed, managing director and chief executive officer (CEO) of Shahjalal Islami Bank, said the banking sector purchased a record $2.25 billion in remittances in May, which contributed to the pressure on existing liquidity.
"The rising inflationary pressures on the economy tend to increase cash withdrawal tendencies, and that is what we are seeing now," said the experienced banker.
On the other hand, he said loan repayments have slowed down.
Mirza Elias Uddin Ahmed, a top executive at Jamuna Bank, said despite the slight decline, the banking sector maintains sufficient surplus liquidity.
However, he said that some banks with high non-performing loans (NPLs) face a liquidity crunch as they cannot access credit from to interbank sources.
"These banks require central bank funding to meet their needs. However, the industry's overall liquidity situation is currently healthy. We should not draw conclusions based on a single month's data," he said.
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