Excess liquidity in the banking sector dropped below Tk2 lakh crore after a year, due to poor deposit growth against a gradual increase in credit demand.
The latest Bangladesh Bank data showed that the amount of excess liquidity in the country’s banking sector decreased to Tk1,98,115.64 crore at the end of March 2022.
It had reached a record high of Tk2,31,463 crore back in June 2021, from Tk1,03,358.12 crore in January 2020.
The supply of excess liquidity has remained above Tk2 lakh crore since April 2021.
The excess money in the banking sector reached Tk2,01,677.9 crore in April 2021 due to an injection of a huge amount of liquidity by the central bank for speedy revival of the economy affected by the Covid-19 pandemic.
A number of stimulus packages and purchase of the dollar from the banks were the reason for the sudden surge in excess liquidity in the banking system.
Total excess liquid assets continued to decrease in March 2022 compared with that in the previous months of the current fiscal year, due to a gradual increase in credit demand along with Bangladesh Bank’s intervention in the foreign exchange market with sales of dollars, said the latest central bank report.
A lower supply of liquidity against an increasing demand has contributed to the reduction in the amount of excess liquidity in the country’s banking system.
Year-on-year deposit growth rate in the banking system was more than 12% in January 2020 and the rate was around 14% in the first half of 2021.
The growth rate, however, dropped to 9.05% in March when the growth rate of credit to the private sector reached 11.29% after being on the declining trend since the outbreak of coronavirus to plunge to 7.55% in May 2021.
The supply of over $4 billion by the central bank throughout the current fiscal year also squeezed supply of the local currency taka from the market, resulting in an excess liquidity fall on the market.
Of the March 2022-end total excess liquidity in banks, the state-owned banks held the highest, 40.26% or Tk80,497.95 crore, in excess liquidity.
Against the minimum liquid asset requirements of Tk68,303.65 crore, the state banks were holding liquid assets worth Tk1,48,801.6 crore.
The private banks other than Islamic ones held the second highest, 32.4% or Tk64,772.35 crore, in excess liquidity.
The total liquid assets of the banks were Tk1,81,671.61 crore against their minimum requirement of Tk1,16,899.26 crore.
The share of Islamic banks and foreign banks in the total excess liquidity in the banking sector were 13.91% and 14.41% respectively.
The amount of excess liquidity of Islamic banks and foreign banks were Tk27,813.12 crore and Tk26,802.43 crore respectively.
Specialized banks held 0.03% or Tk50.54 crore in excess liquidity out of the total excess liquidity in the sector.