BB asks banks to invest excess amount of funds in productive sectors

FE Team | Published: October 02, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Siddiqiue Islam
The Bangladesh Bank (BB) has advised all banks to invest their excess funds in the productive sectors, particularly in the small and medium enterprises (SME).
The central bank suggestion came when most of the commercial banks are facing problem in investing a large amount of excess liquidity worth Tk 142.79 billion.
The bankers expressed concern over the excess liquidity in the country's banking system, saying that the profitability of the banks will be affected by the end of this year if the existing situation continues.
"Our cost of funds gradually increases due to the huge excess liquidity in the banking system that might hit the overall profitability of the banks by the end of this year," a senior official of a private commercial bank told the FE Monday.
Excess liquidity of the scheduled banks stood at Tk 142.79 billion at the end of June last against Tk 95.91 billion of the corresponding period of the previous year, according to the central bank statistics.
"The maturity of five-year government treasury bills from August to November 2007 is about Tk 40.00 billion but the treasury auction calendar during the period is much lower than that of the maturity. As a result, the existing excess liquidity in the banking system may further increase by the surplus maturity of the treasury bills," a senior treasury official of a commercial bank explained.
He also said most of the banks are trying to invest their excess liquidity in the productive sectors including agriculture and SME to help alleviate poverty through creating employment opportunities.
"Different productive sectors including SMEs and women entrepreneurs offer ample scopes for banks to invest their huge excess liquidity," the BB said in a circular, issued Sunday.
The circular reminded the banks and non-banking financial institutions (NBFIs) of a previous instruction for setting up SME desk and noted that responses from banks and NBFIs were not very encouraging in this regard.
"We have advised the banks to utilise their excess liquidity through investing such funds in the productive sectors including SMEs and women entrepreneurs," a BB senior official told the FE.
He also said the central bank will monitor the activities of banks and NBFIs in the SMEs and women entrepreneurs.
Chief adviser (CA) Fakhruddin Ahmed wrote a letter to the Bangladesh Bank Governor Salehuddin Ahmed earlier suggesting measures to reduce excess liquidity in the banking sector through increasing lending to new sectors with low capital requirements and to small entrepreneurs having innovative ideas.
Regarding excess liquidity in the banks, the CA suggested to take proactive actions, in particular by the senior management of the banks to spend a little more time with prospective borrowers in advising them on the sectors with good prospects.
The banks must be encouraged to move into new sectors with low capital requirements and to small enterprises, he said, adding that the BB should also follow up with the banks and monitor progress regularly.
"I would rather have the banks take some calculated risks with small enterprises than keeping excess liquidity in their accounts," Fakhruddin, who was the immediate past governor of the central bank noted.