Banks' excess liquidity falls by Tk8,128cr in January

The excess liquidity in the banking sector dropped by Tk8,128 crore to Tk1,37,600 crore in January compared to the previous month. 

According to data from the Bangladesh Bank, the amount of excess liquidity in banks was Tk2,03,435 crore in June last year. 

According to bankers, some banks are still facing a liquidity crunch while others have this cash surplus.

Bankers said the central bank's massive sale of dollars, low deposit rates, dollar appreciation, and large cash withdrawals by customers have reduced excess liquidity.

It dropped sharply to Tk1.53 lakh crore in November from Tk1.69 lakh crore in October 2022.

Infograph: TBS

On the condition of anonymity, heads of the Treasury Department at several banks said that the banks were in a dollar crisis throughout 2022. At this time, the liquidity crisis has arisen due to the massive purchase of dollars from the central bank. In addition, due to the disclosure of information about loan irregularities of some banks, customers' cash withdrawals have increased significantly, causing excess liquidity to decrease.

They also stated that when the interest rate on government bills and bonds is high, banks usually invest their excess liquidity. On 15 January, the central bank raised the interest rate on consumer loans from 9% to 12% as part of the new monetary policy. Owing to this, many banks have not reinvested after the maturity of their investments in bills and bonds, resulting in a drop in the amount of excess liquidity.

The excess liquidity is calculated after maintaining the required statutory liquidity ratio (SLR) and cash reserve ratio (CRR).

It is mandatory for banks to maintain a 4% CRR of total deposits in cash form and a 13% SLR in non-cash form with the Bangladesh Bank.

On 19 February, the central bank called an auction for 91-day Treasury bills, where the yield rate was 6.84%, down from 7.45% in January.

Banks participate in the auction to invest in bills through which the government borrows for budget expenditures.

The yield rate for five-year Treasury bonds came down to 8.20% in February from 8.29% in January, according to central bank data.

According to central bank data, at the end of June 2022, the government's liabilities in securities to banks were Tk3.22 lakh crore. At the end of December 2022, the amount had decreased to Tk2.72 lakh crore.

A central bank official said the reduction in the amount of the liabilities as securities means the government is paying off more debt. In the first seven months of the current financial year, the government has taken a loan of Tk46,000 crore from the central bank and repaid Tk11,000 crore to banks.

He also said that the government is supposed to take a loan of Tk1.6 lakh crore from the banking sector to meet the deficit of the current financial year. So far, instead of taking a net loan from the banks, it has repaid Tk11,000 crore. Which means that the government is not borrowing because of the liquidity crisis of the banks.

The BB injected more than $10 billion in the financial system from July to January in FY-23 in order to stabilise the foreign currency market and facilitate banks in meeting their import payment obligations.

Due to the dollar sales, foreign exchange reserves dropped to $32.60 billion on 15 February 2023 from a record $48.6 billion in August 2021.

Bangladesh Bank's efforts to ease the liquidity crisis in both the foreign exchange and local markets appear to be paying off, as money rates have started to cool down since early February after rallying for several months, according to data.

Banks' excess reserves after required cash maintenance surged to Tk8,700 crore at the end of January, compared to only Tk5,800 crore in December of last year, according to central bank data.

In addition, the Bangladesh Bank introduced several refinancing schemes that also helped banks meet the lending demand.

The Bangladesh Bank also sped up liquidity support to banks through the repo facility, which also helped ease the liquidity crisis, said a central banker.