Photo: Collected
Banks’ excess liquidity rose by around Tk 10,000 crore or 5.89 per cent in April compared to March, although the country's banking sector experienced its lowest deposit growth in 10 months.
According to the Bangladesh Bank data, excess liquidity in banks was Tk 176,662 crore in April, up from Tk 166,822 crore in March – an increase of Tk 9,840 crore in a single month. Though the growth of bank deposits decreased in April and more money circulated outside banks, overall excess liquidity and cash excess liquidity still increased due to several factors, bankers said.
One of the key reasons was that long-standing dues to banks for fertiliser and electricity have been repaid in bonds by the government after which the banks have reinvested this liquidity in treasury bills and bonds, according to bankers.
Banks have been facing a liquidity crisis since 2022 as they purchased over $30 billion from the central bank. This has led to nearly Tk 3.75 lakh crore being transferred to the central bank. Additionally, concerns over bank mergers and instances of loan fraud have caused customers to withdraw their money. Inflation has also forced customers to use their savings for household expenses, contributing to slow deposit growth.
Since banks are required to maintain a certain amount of their deposits as Statutory Liquidity Ratio (SLR), and investments in various government and private securities count towards this requirement, the recent increase in investments in these government securities has resulted in excess liquidity being counted beyond the SLR requirement.
To ensure the security of customer deposits, banks are required to maintain a certain amount of cash and investment securities with the central bank. Banks must keep 4 per cent of their cash reserve ratio (CRR) and statutory liquidity requirements (SLR) of 13 per cent for conventional banking and 5.5 per cent for Islamic banks. Despite these requirements, the total excess liquid assets (including securities) amounted to Tk 176,662 crore at the end of April. In December 2023, banks' excess liquidity was Tk 1.63 lakh crore, and in July 2023, it was Tk 1.80 lakh crore.
Till April this year, banks' minimum required liquid assets were Tk 2,71,052 crore, while total liquid assets were Tk 4,37,878 crore, according to the Bangladesh Bank data. In January, the government issued special bonds worth Tk 26,000 crore to 40 public and private banks to settle dues in the fertiliser and electricity sectors. The coupon rate or interest rate of these bonds is 8.5 per cent. However, the banks collected these bonds at this rate and lent the government at a higher rate through treasury bills and bonds.
For the first time on 3 June, the interest rate for the one-year treasury bill reached a record 12 per cent, as the government began borrowing at high rates from banks to curb inflation. However, experts have warned that rising interest costs will increase the budget deficit, adding to the government's payment burden.
The interest rate for one-year bills was 7.75 per cent a year ago, according to the Bangladesh Bank data. By June, interest rates for all types of bills and bonds had risen to a minimum of 11.30 per cent to 12.55 per cent, compared to 6.75 per cent to 8.5 per cent a year ago. Meanwhile, banks' excess cash liquidity is also on the rise. At the end of April, it stood at Tk 8,409 crore, up from Tk 5,581 crore a month earlier. The central bank's data shows that the excess cash liquidity of banks at the end of December 2023 was Tk 19,966 crore which was Tk 11,701 crore in July 2023.
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