Excess liquidity wanes as credit demand rises

The overall excess liquidity with the commercial banks decreased by nearly 19 per cent or Tk 230 billion in April from a level it was four months ago due to accelerated credit growth particularly in the private sector, officials said.
It stood at Tk 1.0 trillion in the last week of April, falling from Tk 1.23 trillion as on December 31 last year, according to latest statistics of Bangladesh Bank (BB).
"The amount of excess liquidity has dropped recently mainly due to a higher private sector credit growth," a senior official of the central bank told the FE Wednesday.
Lower lending rates might have encouraged the businessmen and individuals to borrow more from the banks to meet their demand for funds, he explained.
The weighted average interest rate on lending fell to 9.62 per cent in April from 9.70 per cent in the previous month while the weighted average interest rate on deposits came down to 4.97 per cent from 5.01 per cent.
He said consumer credits recently witnessed significant rise due to the lower rates.
Another BB official said the government's negative borrowing from the banking system has also contributed in reducing the liquidity in the money market.
"Most of the excess liquidity has already been invested in the government-approved securities and BB bills as a risk-free investment," he added.
Besides, excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, came down to Tk 420 billion during the period under review from Tk 450 billion, according to the central banker.
"We expect that the falling trend of excess liquidity to continue in the coming months if the present trend of private sector credit growth persists," he noted.
Meanwhile, private sector credit growth increased further in April due to higher trade financing for settling import payment obligations, bankers said.
It rose to 16.21 per cent in April, which was close to the BB set target, from 16.06 per cent in March, according to the BB figures. It was 15.88 per cent in February.
The monetary policy for the January-June period of the out fiscal year had set the private sector credit growth target at 16.50 per cent.
"Consumer financing, SME and agriculture loans have pushed up the overall private sector credit growth during the period under review," said an executive of a leading private commercial bank (PCB).
He said the upward trend of private sector credit might continue in the coming months, following implementation of different infrastructures along with mega projects in the country.
Currently, the government is implementing nine projects under its Fast Track Project Monitoring Committee, headed by Prime Minister Sheikh Hasina.
However, the total outstanding loans with the private sector rose to Tk 7.49 trillion in April from Tk 7.39 trillion a month ago. It was Tk 6.45 trillion in April 2016.
siddique.islam@gmail.com