Banks trying to be innovative to employ their excess funds

Commercial banks are now diversifying lending portfolios to invest their excess liquidity in non-traditional business activities along with traditional ones, bankers said.
The banks have adopted a new business strategy because of the increasing mismatch between deposit and lending. Deposit is now far greater than the banks' lending, they said.
As part of the move, the banks are interested to invest their excess funds in new products like commercial paper, subordinate bond and preference shares.
As eligible investors (EIs), they said, the banks and financial institutions (FIs) are now willing to take part in bidding of stocks of companies which will be allowed to go public under the revised book building system.
The overall bank deposit (excluding inter-bank) increased by more than 11 per cent to Tk 7889.96 billion as on December 10 last from Tk 7104.73 billion on December 31, 2014.
On the other hand, credit (excluding inter-bank) grew by 9.37 per cent to Tk 5782.83 billion during the period under review from Tk 5287.55 billion by the end of 2014, according to the latest statistics of the Bangladesh Bank.
Besides, total EDF (export development fund) and refinance rose to Tk 161.12 billion as on December 10 last from Tk 146.63 billion on December 31 of the previous calendar year, the official data showed.
"We're looking for alternative investment avenues as we're finding it difficult to invest our money in traditional areas," Syed Mahbubur Rahman, managing director and chief executive officer of Dhaka Bank Ltd, told the FE on Thursday.
Falling credit demand is pushing the banks to explore alternative avenues, the senior banker explained.
Talking to the FE, a senior executive of a leading private commercial bank (PCB) said cuts in policy interest rates have also given a signal to the banks to increase investment by slashing their overall interest in near future.
Earlier on January 14 last, the Bangladesh Bank (BB) slashed the policy rates aiming to spur investment, particularly in productive sectors for achieving maximum economic growth by the end of this fiscal year.
Thus interest rate on repurchase agreement (repo) came down to 6.75 per cent from 7.25 per cent on 14 January last while the reverse repo rate was re-fixed at 4.75 per cent from 5.25 per cent earlier.
"We don't see any impact on revising the policy rates in the market in last two weeks mainly due to lack of monetary transformation mechanism in Bangladesh," the banker observed.
But lending and deposit rates may decrease again in near future following the latest measures taken by the central bank, he added.
"Upward trend in inward remittances has contributed to raising the deposit growth in 2015," Mizanur Rahman, managing director and CEO of Modhumoti Bank Ltd (MMBL) told the FE.
Nowadays, most of the businessmen are investing their funds in a very calculative way for minimising their financial risks, Mr Rahman said while explaining the causes of higher deposit growth in 2015.
Currently, the government and the central bank are working to bring more unbanked people into the banking network by gearing up the ongoing financial inclusion initiatives across the country.
Bangladeshi overseas workers remitted $ 15.31 billion in 2015, marking a 2.47 per cent growth than that of the previous calendar year, according to the central bank statistics. Meanwhile, overall excess liquidity with the commercial banks stood at around Tk 1.20 trillion as of December 10. But a major portion of the funds has been invested in risk-free government securities, a BB senior official told the FE earlier.
He also said excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 37 billion.
At least 20 banks are still heavily burdened with excess liquidity because of lower credit demand from the businesses, engaged in both trade and industrial operations, industry insiders said.
Currently, the banks have no alternative avenue excepting the government securities and 30-day BB bills to invest their excess liquidity for minimising the cost of funds, they added.
Sluggish trend in share market has also helped higher growth of bank deposit last year, according to the insiders.
DSEX, the benchmark index of the Dhaka Stock Exchange (DSE), came down to 4,629.64 on December 31 last, slumping 235 points or nearly 5.0 per cent from 4,864.96 on January 1, 2015, according to the DSE statistics.
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