Excess liquidity falls due to aggressive lending

Islamic banks in Bangladesh are facing a severe liquidity crisis due to excess disbursement of loans, leaving their excess liquidity amount at Tk 1,518 crore at the end of March 2024, according to the latest Bangladesh Bank data released on Tuesday.

The amount was Tk 6,643 crore at the end of December 2023.

Excess liquidity is calculated after maintaining the required Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). Banks are obligated to maintain 4 per cent CRR of total deposits in cash form and 13 per cent SLR in non-cash form with the Bangladesh Bank (BB).

A senior BB official said that a bank's excess liquidity depends on its deposit collection and loan disbursement. Excess liquidity decreases when a bank receives fewer deposits and disburses more loans or investments.

Islamic banks in Bangladesh have disbursed more loans and advances compared to deposits at the end of March this year, said the official.

BB data showed that the outstanding loan disbursement amount in Islamic banks stood at Tk 4,56,994 crore at the end of March, and at the same time, the outstanding deposited amount stood at Tk 4,39,465 crore.

Data also showed that the market share of Islamic banks has successively been increasing over time.

At the end of March 2024, Islamic banks represented 26.23 per cent share in terms of deposits and 28.24 per cent share in terms of investments in the total banking industry, which was 25.35 per cent and 28.92 per cent, respectively, at the end of December 2023.

Of the Islamic banks, Islami Bank Bangladesh received the highest amount of deposits (34.74 per cent), followed by Al-Arafah Islami Bank (10.42 per cent), First Security Islami Bank (10.20 per cent), EXIM Bank (9.62 per cent), Social Islami Bank (7.38 per cent), ICB Islamic Bank (0.28 per cent), Shahjalal Islami Bank (5.88 per cent), Union Bank (5.05 per cent), and Global Islami Bank (2.91 per cent).