Excess liquidity in banks drops by 6 per cent

The overall excess liquidity with the commercial banks decreased slightly in January in view of political stability restored in the country after a prolonged turmoil.
"Excess liquidity does not necessarily mean idle money for the banks," a senior official of the Bangladesh Bank (BB) told the FE Thursday.
He also said most of the excess liquidity had already been invested in the government-approved securities as a  risk-free investment for banks.
The excess liquidity dropped by more than 6.0 per cent to Tk 893.37 billion as on January 9 last from Tk 955.81 billion in December last. It was Tk 900.74 billion in November 2013.
Of the amount, a total of Tk 790.95 billion has been invested in the government securities, which is 88.5 per cent of the total excess liquidity with the banks, according to the central bank statistics.  Besides, excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at Tk 51.51 billion or 5.8 per cent of the total excess liquidity.
On the other hand, the balance of foreign currency clearing account BB was at Tk 50.90 billion as on January 9 last.
"Both investments in the government securities and balance in the foreign currency clearing account bear interest. So, these two items are not idle money for the banks," the central banker explained.
He also said balance of foreign currency clearing account is also used to meet obligation of foreign trade in a large amount.
The amount of excess reserve, which was only 0.85 per cent of the total deposit of the country's banking system, may be identified as idle money for 56 commercial banks in Bangladesh, according to the BB official.
"We expect the declining trend of excess liquidity with the banks to continue in the coming months. Political stability has started coming back after the parliamentary elections held on January 5 last," the central banker noted.
He also said the overall business activities had been badly affected since October last year following frequent spells of blockade and shutdown.
Talking to the FE, another BB official said the excess liquidity in the banking system created a new record in December last year as the falling trend of credit flow to the private sector in the recent months because of the political turmoil.
The rate of private sector credit growth came down to 10.60 per cent in December last from 10.95 per cent in November 2013. The rate was 16.61 per cent in December 2012.
"Private sector credit from overseas sources has also contributed to the lower growth in the credit flow to the private sector recently," the central banker noted.
The excess liquidity of the state-owned banks stood at Tk 412.07 billion in December last, while that of the private commercial banks was at Tk 436.63 billion. The excess liquidity of the foreign commercial banks and specialised banks were Tk 90.98 billion and Tk 16.12 billion respectively at the same time.
Echoing the BB official, a senior official of a leading private commercial bank said most of the corporate entities now prefer foreign currency loan from overseas sources due mainly to their lower interest rate.
"We're now reducing the interest rates on lending to attract good borrowers for increasing our credit growth in the near future," the private banker said while replying to a query.
He also said the credit growth in the private sector might rise gradually if the political stability continues.