‘No worry about deficit financing as banks hold enough cash’

There is nothing to worry about deficit financing as banks have enough loanable funds, Bangladesh Bank governor Fazle Kabir said at a post-budget press conference on Friday.

"Banks will not face any pressure to finance the government after lending to industries under the stimulus packages as there is enough surplus liquidity in the banking sector," he stated.

He informed the media that the banking sector had Tk1,13,000 crore in surplus liquidity as of April 30 after maintaining its statutory liquidity requirements.

The government set the bank borrowing target at Tk84,000 crore in the budget proposal placed on Thursday, which constitutes 44.72 percent of total deficit financing.

On the slow movement of loan disbursement under the stimulus, the governor noted that banks had resumed full-fledged work from May 31. He said banks had already received loan proposals amounting to Tk1,200 crore under the stimulus package of Tk30,000 crore for large industries and services.

The BB governor added, "During the corona pandemic the central bank has taken a branch of an initiative to increase the supply of liquidity in the banking sector. Besides the rate cut of cash reserve ratio the central bank has formulated some refinance scheme that injects Tk72,000 crore into the banking sector.

Foreign exchange reserves had reached a record level this month, he added.

Tawfiq-e-Elahi Chowdhury, an advisor to the prime minister, said, "The world at present is facing a recession which is the deepest in the last 100 years. The USA has borrowed $6 trillion from its central bank, which is about one-third of its current gross domestic product. We have set a target to borrow more money from the banking system but lower than in other countries."

Finance Minister AHM Mustafa Kamal said, "The rate of non-performing loans was very high when I took charge of the finance ministry and the banks were facing a liquidity crisis. The problem has been reduced and banks are not rejecting credit proposals due to liquidity crisis. It is not mandatory to have huge liquidity in banks."

The finance minister also expressed his satisfaction over the country's current forex reserve position.

On June 3, the country's forex reserve crossed $34 billion for the first time. On June 10, the reserve increased to $34.43 billion thanks to a satisfactory remittance inflow despite the coronavirus pandemic and an increasing trend in favour of foreign aid.