Excess liquidity in banks pushes treasury bill yields below 9%

Interest rates on treasury bills have declined by 21-25 basis points as banks are flush with excess liquidity while demand for private-sector credit remains weak.

Infograph: TBS

According to Bangladesh Bank data, the yield on 91-day treasury bills fell below 9% to 8.93% yesterday (16 August), down from 9.19% a week earlier.

The yield on 182-day treasury bills declined to 9.07% from 9.32%, while the rate on 364-day bills fell to 9.13% from 9.33% over the same period.

Bankers attributed the decline mainly to excess liquidity in the banking system and weak demand for loans from the private sector.

The central bank data show that banks' surplus funds rose to Tk4,08,000 crore in June from Tk3,27,877 crore in May, an increase of Tk80,123 crore. The amount stood at Tk3,77,235 crore in April and Tk3,78,134 crore in March.

Bankers said deposit growth has improved as banks have offered relatively high interest rates to attract funds. By May, deposits at leading banks had grown by around 11.5% over the previous year.

As deposits continue to grow while credit demand remains subdued, banks are looking for safe investment avenues for their excess funds. Treasury bills have emerged as an attractive option for short-term investments, offering yields of around 9% with relatively low risk.

Several leading banks that accumulated substantial deposits in recent months have increased their investment in treasury bills, putting downward pressure on yields.

With deposit growth strengthening, many leading banks have also reduced deposit rates by 50-100 basis points since August.

Investment in treasury bills and bonds totalled Tk7,95,359 crore in FY26, up from Tk6,93,725 crore in the previous fiscal year.

Banks, insurance companies and other financial institutions are the major investors in government securities. Commercial banks, in particular, have increased their holdings as private-sector credit growth has slowed.

Bangladesh Bank removed the 9% lending rate cap on 1 July 2023 and introduced a market-based interest rate regime linked to the SMART system. Treasury bill and bond yields subsequently increased.

Yields crossed 12% at times during FY25, when deposit rates at different banks ranged between 9% and 11%.

Bankers said individual investors also showed unusually strong interest in treasury bills and bonds during that period, as the securities offered relatively high returns compared with other investment options.