Excess liquidity in banks rises Tk5,000cr in March
However, cash excess liquidity dropped by Tk2,000 crore mainly because banks are investing in government Treasury bills and bonds, as the interest rates of these tools are rising.
Excess liquidity in the country's banking system increased by around Tk5,000 crore in March compared to February, thanks to robust deposit growth of nearly 10%.
However, cash excess liquidity dropped by Tk2,000 crore mainly because banks are investing in government Treasury bills and bonds, as the interest rates of these tools are rising.
According to central bank data, excess liquidity in banks reached Tk1.68 lakh crore at the end of March, up from Tk1.63 lakh crore a month ago. In January, it was Tk1.55 lakh crore.
But banks' cash excess liquidity stood at Tk5,581 crore, down from Tk7,642 crore in February.
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Bankers say a large part of excess liquidity is not with banks. Lenders have invested a portion of this money to buy Treasury bills and bonds. Presently, the interest on bills and bonds has increased to around 12%, which has heightened banks' willingness to lend to the government.
The central bank has ceased printing money to lend to the government amid continuous sales of dollars from the reserves. Instead, the government is repaying the central bank by borrowing from commercial banks, which also worsens liquidity stress.
Government borrowing from state-owned and private commercial banks has surged in the first 10 months of the current fiscal year, reaching over Tk65,000 crore through the sale of Treasury bills and bonds.
According to data from the Bangladesh Bank, the government's net borrowing from the banking sector amounted to Tk45,557 crore from last July to April 22 this year, with a repayment of Tk19,874 crore made to the central bank.
The excess liquidity is calculated after maintaining the required statutory liquidity ratio (SLR) and cash reserve ratio (CRR). Banks are mandated to keep 4% of total deposits as CRR in cash and 13% as SLR in non-cash form with the Bangladesh Bank.
The surplus amount remains invested in government bonds, through which the government borrows money from the banking system.
Anis A Khan, former chairman of the Association of Bankers, Bangladesh (ABB), told The Business Standard, "An increase in deposits in the banking system has given rise to excess liquidity. However, this is not a significant change considering the percentage of changes."
A senior official at the central bank mentioned that banks' excess cash liquidity has decreased due to increased investment in Treasury bills and bonds. The Bangladesh Bank has increased lending through various tools, including repo, to ease liquidity stress. However, the banking regulator continues to monitor reserve money in accordance with the Monetary Policy Statement.
The impact of increased liquidity stress is evident in the central bank's practices concerning repo, standing lending facilities, liquidity support facilities, and Islamic banks' liquidity facilities. The central bank currently provides Tk16,000-18,000 crore of such short-term loans to commercial banks daily.
Despite the excess liquidity, the call money rate has remained high as banks cannot immediately liquidate their bond investments, and the central bank has raised the policy rate to curb inflation. Consequently, banks are borrowing from the call money market.
The call money rate exceeded 9% this month, up from around 6.50% at the beginning of October.
A policymaking official at a private bank noted that investing banks' funds in the money market yields lower returns compared to Treasury bills and bonds.
"This is why banks are more inclined to invest in bills and bonds, leading to liquidity stress. To address this situation, the central bank is providing short-term loans to banks through various tools, including repo," he added.
