Liquidity crisis in banking sector

In recent times, Bangladesh's banking sector has found itself grappling with a formidable challenge: a liquidity crisis. Among them, Five Islamic banks --Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank -- are facing an extreme liquidity crisis.
This is happening because of the loan irregularities. This predicament has raised concerns not only within the financial sector but also among policymakers and the public at large. Understanding the dynamics and implications of this liquidity crunch is paramount for charting a path towards stability and resilience in the nation's banking system. As banks extend loans and invest in various assets, they must ensure that they have sufficient liquid assets to meet their short-term obligations.
However, mismatches in asset-liability management have left many banks vulnerable to liquidity shortages, particularly during times of economic stress. The country's central bank boosted the policy rate lately to combat the persistent inflationary pressure, which made the liquidity crisis worse. Regulators, policymakers, and financial institutions need to work together to resolve the liquidity challenges facing the banking sector.

Ifti Sam
BBA, Department of Finance and Accounting
North South University
[email protected]