Banks awash with excess liquidity
Thursday, 9 April 2009
Siddique Islam
The call money rate came down to as low as 0.25 per cent in inter-bank money market Wednesday as the banks are now awash with excess liquidity.
The overall excess liquidity with the commercial banks, a record Tk 215 billion in February last, represented a 65 per cent growth over that of the corresponding period of the previous year. The figure was Tk 130 billion in February 2008, according to the latest estimation.
A consistent decline in the call rate in the inter-bank money marker reflects a poor investment situation in the backdrop of the existing global recession, experts said.
"The amount of excess liquidity in the banking system has created a new record in the country's history. It might have gone up further in the month of March," a senior official of the Bangladesh Bank (BB) told the FE Wednesday.
The excess liquidity of the state-owned banks (SCBs) stood at Tk 102 billion as on February 28, 2009, while that of the private commercial banks (PCBs) was at Tk 77.50 billion. The excess liquidity of the foreign banks was Tk 33 billion at the same time, the BB officials said.
Bankers, however, said the excess liquidity reached at record high level because of falling trend in credit flow to the private sector in the recent months.
"Market is now having more liquidity because of downtrend in import payments in the wake of decline in commodity prices in the global market," a chief executive officer of a private commercial bank told the FE.
He also said most of the entrepreneurs are now watching the overall situation closely before making any fresh investment to avoid financial risk.
Import orders for capital machinery plummeted by 30 per cent in the first eight months of the financial year, indicating a slowdown in industrial activities in the coming months.
Letters of credit worth US$786.03 million were opened against the import capital machinery during the July-February period of this fiscal as against $1.116 billion in the corresponding period last fiscal, the central bank said.
Non acceptance of reverse repurchase agreement (repo) by the central bank since March 25 last also contributed to the decline in call rate sharply, market operators said.
"The central bank does not accept the reverse repo, instead it is injecting fresh funds through purchasing US dollar from commercial banks continuously," a senior treasury official of a commercial bank told the FE while explaining reasons for the sharp fall in the call money rate.
On the other hand, the BB officials said the central bank has been giving signal to the commercial banks through different circulars and meetings to expedite investments in productive sectors including agriculture and small and medium enterprises (SMEs).
"The central bank is encouraging the commercial banks to look for new areas of investment that will help minimise their cost of funds. At the same time, such investment will help economy overcome the effects of the ongoing economic recession," another BB official said.
He also said the BB has advised the banks particularly local and foreign private commercial banks to establish relationship with the non-governmental organisations (NGOs) to disburse farm credit in the rural areas through the latter.
The amount of excess liquidity includes bonds worth Tk 73.225 billion that were issued by the government against the liabilities of Bangladesh Petroleum Corporation (BPC), officials added.
The government earlier provided the bonds to the state-owned Sonali Bank Limited and Janata Bank Limited amounting to Tk 55 billion and Tk 18.22 billion respectively to clear BPC's fuel oil import liabilities.
However, the liquid assets in excess of statutory liquidity ratio (SLR), amounting to Tk 215 billion, are the potential loan-able funds that scheduled banks could use for expanding credit to the private sector, they noted.
The call money rate came down to as low as 0.25 per cent in inter-bank money market Wednesday as the banks are now awash with excess liquidity.
The overall excess liquidity with the commercial banks, a record Tk 215 billion in February last, represented a 65 per cent growth over that of the corresponding period of the previous year. The figure was Tk 130 billion in February 2008, according to the latest estimation.
A consistent decline in the call rate in the inter-bank money marker reflects a poor investment situation in the backdrop of the existing global recession, experts said.
"The amount of excess liquidity in the banking system has created a new record in the country's history. It might have gone up further in the month of March," a senior official of the Bangladesh Bank (BB) told the FE Wednesday.
The excess liquidity of the state-owned banks (SCBs) stood at Tk 102 billion as on February 28, 2009, while that of the private commercial banks (PCBs) was at Tk 77.50 billion. The excess liquidity of the foreign banks was Tk 33 billion at the same time, the BB officials said.
Bankers, however, said the excess liquidity reached at record high level because of falling trend in credit flow to the private sector in the recent months.
"Market is now having more liquidity because of downtrend in import payments in the wake of decline in commodity prices in the global market," a chief executive officer of a private commercial bank told the FE.
He also said most of the entrepreneurs are now watching the overall situation closely before making any fresh investment to avoid financial risk.
Import orders for capital machinery plummeted by 30 per cent in the first eight months of the financial year, indicating a slowdown in industrial activities in the coming months.
Letters of credit worth US$786.03 million were opened against the import capital machinery during the July-February period of this fiscal as against $1.116 billion in the corresponding period last fiscal, the central bank said.
Non acceptance of reverse repurchase agreement (repo) by the central bank since March 25 last also contributed to the decline in call rate sharply, market operators said.
"The central bank does not accept the reverse repo, instead it is injecting fresh funds through purchasing US dollar from commercial banks continuously," a senior treasury official of a commercial bank told the FE while explaining reasons for the sharp fall in the call money rate.
On the other hand, the BB officials said the central bank has been giving signal to the commercial banks through different circulars and meetings to expedite investments in productive sectors including agriculture and small and medium enterprises (SMEs).
"The central bank is encouraging the commercial banks to look for new areas of investment that will help minimise their cost of funds. At the same time, such investment will help economy overcome the effects of the ongoing economic recession," another BB official said.
He also said the BB has advised the banks particularly local and foreign private commercial banks to establish relationship with the non-governmental organisations (NGOs) to disburse farm credit in the rural areas through the latter.
The amount of excess liquidity includes bonds worth Tk 73.225 billion that were issued by the government against the liabilities of Bangladesh Petroleum Corporation (BPC), officials added.
The government earlier provided the bonds to the state-owned Sonali Bank Limited and Janata Bank Limited amounting to Tk 55 billion and Tk 18.22 billion respectively to clear BPC's fuel oil import liabilities.
However, the liquid assets in excess of statutory liquidity ratio (SLR), amounting to Tk 215 billion, are the potential loan-able funds that scheduled banks could use for expanding credit to the private sector, they noted.