Cash-strapped banks seem to be slowly bouncing back from liquidity crunch on cash feeding by the central bank that has handed out a record amount to the bankers.
The improvement is basically reflected in two key liquidity-measuring indicators -- the volume of excess liquidity in banks and uninvested cash in vaults. The disposables marked a sharp rise this past February.
Excess liquidity includes various cash and cash-equivalent assets, including treasury bills and bonds, along with cash reserves other than liquid assets while uninvested cash means the credits that are available in the vaults.
According to Bangladesh Bank (BB) statistics, the volume of uninvested excess cash in the banking system had stood down at Tk 116.30 billion by June 2023. The figure plummeted further, reaching Tk 54.30 billion in November 2023 and Tk 51.56 billion in January 2024. Thereafter comes a rebound, the figure rising to Tk 76.43 billion by the end of February last, the data showed.
On the other hand, the excess liquidity in commercial banks was recorded Tk 1.66 trillion in June last year. The volume of the excess liquidity was Tk 1.41 trillion in November, Tk 1.63 trillion in December, 2023 and Tk 1.55 trillion in January this year.
But the figure rose to Tk 1.65 trillion in the following month of February, showing a sign of rebound, according to the BB data.
Seeking anonymity, a BB official told the FE that the liquidity situation in the banking industry started improving after months of tightness because of various policy supports of the central bank.
"The commercial banks have been fully meeting government's domestic bank-borrowing requirement after the central bank's decision skipping 'devolvement' to contain inflation from early this financial year (FY'24) and it put liquidity in banks under immense pressure," he said.
To give a breathing space for the credit-hungry banks, the central banker said, the banking regulator unrelentingly accepts all the fund-requirement appeals from the commercial lenders.
"As a matter of fact, liquidity feeding into the banks keeps rising significantly in recent months, which helps improve the liquidity in banks to a large extent."
According to the BB statistics, the central bank lent liquidity dollops amounting to Tk 633.47 billion in June 2023.
The volume of cash funnelled into the fund-starved banks further swelled to hit Tk 3.45 trillion in November, Tk 3.51 trillion in December and Tk 3.63 trillion in January 2024.
In February, the figure declined slightly, but stood over Tk 3.0 trillion.
Alongside the central bank's increased cash feeding, managing director and chief executive officer of Dhaka Bank Emranul Huq says, the credit demand is still on the downturn as port-import finance and offshore banking finance continue dropping in recent times.
"These could be the factors behind the improvement in two liquidity-measuring indicators," the bank's top executive told the FE correspondent.
Top executive of Jamuna Bank Mirza Elias Uddin Ahmed says the banking sector has enough stock of surplus liquidity. But there are few banks having some inherent problems like growing NPLs which face liquidity crunch as they are not getting credit support from interbank sources.
"So, they desperately need fund from the central bank. Otherwise, the liquidity situation is fine in the industry now," he added.
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