9 banks hold over 60% of excess liquidity

Sixty-two per cent of the excess fund in the banking sector in Bangladesh is concentrated in nine banks, highlighting the liquidity pressure facing other lenders.

The nine banks are Sonali Bank, Standard Chartered, Janata Bank, Islami Bank Bangladesh Ltd, Agrani, Rupali, Pubali, Bank Asia, and Dutch-Bangla Bank Ltd.

Excess liquidity totalled Tk 189,910 crore in July, which was, however, down 7 per cent a month before and 15 per cent year-on-year, data from the Bangladesh Bank showed.

Excess liquidity held by banks means the country's private sector is not getting adequate loans, experts say. This is because the banks that sit on surplus funds usually invest them in the bills and bonds issued by the government.

Some of them are now turning to Treasury bills and bonds because of a reasonable yield compared to the interest rate on loans going to the private sector.

A bank receives up to 8.65 per cent on their investment in government securities whereas they can earn a maximum of 9 per cent on the loans owing to the interest rate ceiling, which has been in place since April 2020.

Shah Md Ahsan Habib, a professor of the Bangladesh Institute of Bank Management, said: "It is a common phenomenon that some banks enjoy better liquidity position while others struggle. This is why cash-strapped banks approach the call money market to meet their immediate liquidity requirement."

The banking sector had a large amount of excess liquidity at the height of the coronavirus pandemic as the opportunity for making investments was squeezed to a large extent owing to business slowdown.

The lower demand for funds sent the excess liquidity to Tk 231,711 crore in July last year.

The amount of surplus liquidity began falling after the country's import payments escalated due to the global supply chain obstacles, along with the pent-up demand as the economy recovered from the pandemic-induced slowdown.