Credit-deposit mismatch worsens liquidity crisis

Mismatch between deposit and credit growth is causing the ongoing liquidity crisis to linger on, found a survey of the Bangladesh Institute of Bank Management (BIBM).

Excess liquidity in the market also came down for this mismatch, revealed a report, “Treasury Operations of Banks 2017”, containing the survey.

Professor Nehal Ahmed of BIBM presented the findings at a programme at the institute yesterday.  Data shows that private sector credit growth was 18.1 percent in December last year while deposit growth was hovering around 10 to 11 percent. In 2015, credit growth was 12.7 percent against the deposit growth of 12.6 percent.

The deposit growth rate was stable in 2015 and 2016 but declined in 2017. The growth rate was 13.1 percent in 2016 and 10.6 percent in 2017. “This reduction of deposit growth might be the outcome of the increased investment in savings instruments,” the survey stated.

Sliding deposit growth is an important signal for banks' treasury departments, as the situation may tighten further in the coming days, the report said. The survey observed that the advance-deposit ratio surged to 76 percent at December's end last year, up from 71 percent two years ago.

Banks should be more cautious about treasury management to avert liquidity crisis, said Abu Hena Mohd Razee Hassan, deputy governor of Bangladesh Bank.

Though the price of the dollar is rising, the central bank is monitoring it strictly to withstand further appreciation, he said. The local currency started to depreciate from November 2016 and reached Tk 82.55 in December last year because of high demand of the greenback, according to the survey.

“Some banks have opened LCs (letters of credit) beyond their capacity, creating pressure on their foreign exchange,” said BIBM's Supernumerary Professor Helal Ahmed Chowdhury, also a former Pubali Bank managing director. The veteran banker asked banks to establish effective coordination between treasury and business development departments.