• Tuesday, Aug 16, 2022
  • Last Update : 04:24 pm

Surplus liquidity continues to fall despite slow credit demand

  • Published at 07:41 pm May 2nd, 2021
Surplus liquidity April 2021

At the end of March, excess liquidity in the country’s banking sector stood at Tk1,98,400 crore, down from Tk200,000 crore a month ago

Surplus liquidity in the banking sector, which began to decline from January earlier this year, continued its dip in March despite slow credit demand.

At the end of March, excess liquidity in the country’s banking sector stood at Tk1,98,400 crore, down from Tk200,000 crore a month ago.

Of the total, Tk87,900 crore was excess liquidity in the state run banks; Tk87,200 crore in the private banks and rest Tk23,300 crore excess liquidity in foreign banks, according to the Bangladesh Bank data.

The surplus fund, however, rose 120.66% in March compared to the same month a year ago, when the amount stood at Tk89,909 crore.

The drastic fall of deposit rate in recent time and the government's decision to use surplus funds belonging to state-owned organizations might be the reason behind the falling surplus liquidity in the banking sector, said Shaheen Iqbal, head of treasury department of Brac Bank.

Shaheen also said that depositors were diverting their money to the national saving certificates due to lower yield on bank deposits.

Weighted average interest rate of deposits in the country’s banking sector stood at 4.46% in February, while most of the banks lowered their interest rate of deposits at 2-3%, as per the Bangladesh Bank data.

Also Read - Surplus liquidity dips in February as demand for credit rises

Echoing Iqbal, Dhaka Bank Managing Director Emranul Huq said that the deposits of banks are now diverting to the government saving tools, as well as treasury bills and bonds owing to the lower interest rate of deposits.

He also said that investment in the country's stock market has increased in recent time compared to the previous time, which might be another reason for the falling trend of excess liquidity.

However, this is not a worrying situation because there is enough liquidity still now in the sector but the upcoming days are very uncertain owing to the second wave of the global Covid-19 pandemic, Huq explained.

“If the repayment of loans would not rise, it will create pressure on the excess liquidity in the upcoming days.”

The amount of excess liquidity in the banking sector rose every month last year due to lower credit demand and the expansionary monetary policy announced by the central bank.

The central bank is also injecting funds to the financial sector with stimulus packages.

In July last year, to steer the economy away from a steep downturn, the BB rolled out a vastly expansionary monetary policy for fiscal 2020-21.

The central bank in February this year decided that the monetary policy would continue during the second half of this fiscal year.