Excess liquidity in banks down as credit demand up

There had been a decrease in the excess liquidity amounting to Tk 2859 crore in the banking system in April, as demand for private sector credit increased.
According to Bangladesh Bank sources, excess liquidity on April 30 stood at Tk 9337 core, which was Tk 12196 crore on March 30 of this year and Tk 14279 crore on June 30 in 2007.
Referring to this decreasing trend in excess liquidity, Finance Adviser AB Mirza Azizul Islam yesterday said demand for credit has increased, which, he claimed, has been caused by the investment-friendly budget.
Commercial banking sources said it is a regular phenomenon that the businesses take more loans from the banks for hoarding prior to the announcement of the budget, with the aim to make more profits from possible price hikes of commodities after the budget has been announced.
“This creates more demand for credit and also results in increased call money rate. We are talking about what has happened to excess liquidity in April, but the fact remains that it decreased further in May,” said managing director of a private commercial bank.
The increase in private sector growth, which is usually 15 to 16 percent, has been more than 23 percent in April.
The call money rate last month reached around 20 percent, which usually remains below 10 percent.
The call money rate, however, has come down below 10 percent after the announcement of the budget, managing director of another private commercial bank said.
“Various initiatives taken by the present government have created a congenial environment for investments. Therefore, some banks may be pushed hard for credit,” Mirza Azizul Islam told reporters after a meeting with a delegation of Bankers Association of Bangladesh (BAB) at the Planning Ministry.
BAB Chairman Nazrul Islam Majumder, who led the delegation, told reporters they have requested the government to increase the government deposit in the private commercial banks from 25 percent to 50 percent.