Banks' excess liquid assets jump Tk51,696cr on slow private credit

The political instability in the country over the past year has led to a significant decline in private sector investment, resulting in a year-on-year increase of Tk51,696 crore in banks' excess liquid assets.

The banking sector's total excess liquid assets – including securities – reached Tk2.15 lakh crore at the end of December 2024, up from Tk1.63 lakh crore a year earlier, according to data from the Bangladesh Bank.

While excess liquid assets of banks increased, excess cash decreased by Tk2,291 crore, standing at Tk17,675 crore at the end of December 2024.

In August 2024, when the Awami League government fell, banks' excess liquid assets stood at Tk5,871 crore, but this figure has increased over the past six months.

Excess liquidity is calculated after maintaining the required Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). 

Banks are required to maintain a 4% CRR of total deposits in cash form and a 13% SLR in non-cash form with the Bangladesh Bank.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Business Standard that the increase in excess liquid assets in banks is due to the very low private sector investment.

He explained that excess liquid assets are the portion of banks' total deposits that must be invested in securities to meet CRR and SLR requirements.

At present, banks have invested more in government securities than in the private sector, considering the overall situation in the country, which has led to the rise in excess liquid assets, said the seasoned banker.

"In December 2024, private sector credit growth was 7.28%, down from more than 10% a year ago. Although a certain amount of new money has been created in banks, that money has been invested in government securities rather than in the private sector. As a result, excess liquid assets have increased," he added.

According to a Bangladesh Bank report, private sector credit growth in December 2024 fell to 7.28%, down by 38 basis points from November, due to weakened loan demand, a lack of new investments, and increased investment in government treasury bills and bonds. 

According to central bank data, private sector credit growth fell to a 3.5-year low of 7.55% in November, down by 66 basis points from October and the lowest since May 2021, continuing a gradual decline since July, when it stood at 10.13%.

The managing director of a state-owned bank told TBS that imports of capital machinery have significantly decreased in the current fiscal year due to a lack of new investment in the country, causing banks to invest their funds in government securities. 

Speaking on condition of anonymity, he also noted that the dollar flow into banks is currently good, with banks importing consumer goods and industrial raw materials fairly well. 

However, the banker added that large-scale investment is unlikely before the elections due to the prevailing law and order situation, said the banker. He believes new investment may increase slightly once the situation normalises.

According to data from the Bangladesh Bank, letter of credit opening increased to $34.89 billion in the July-December period of 2024, compared with $33.49 billion in the same period of the previous year. 

However, imports of capital machinery decreased by 27.66% during this period.