Banks’ surplus liquidity keeps falling

Surplus liquidity in the banking system continued to decline due mainly to the sharp swings of foreign exchanges.

The surplus liquidity stood at Tk 1,74,000 crore in August, down from Tk 1,89,000 crore in July, according to the latest data from the Bangladesh Bank.

Of the August figure, the state-run banks accounted for Tk 59,000 crore, private commercial banks Tk 86,000 crore and foreign banks Tk 29,000 crore. In January, the figure was Tk 2,11,506 crore.

A lion’s share of the surplus liquidity has been invested in the government treasury bonds. The excess liquidity has been falling due to the ongoing volatility in the foreign exchange market, according to BB officials.

Some new generation banks and weak banks are currently facing liquidity shortages despite high excess liquidity in the sector, they said.

“Banking sector’s surplus fund has declined mainly due to rising import financing,” said Dhaka Bank Managing Director and CEO Emranul Huq.

He said that the local lenders need to pay more to buy USD for settling letters of credit (LCs).

The settlement of LCs, also known as actual import payment, rose by 63.06 per cent to $7.64 billion in July, the first month of the current fiscal year, according to the central bank. Of the figure, the settlement for petroleum imports rose by 116.18 percent to $1.28 billion.

The Dhaka Bank CEO said the import payments jumped due to the fuel price hike in the global market hit by the Russia-Ukraine war. The central bank on September 13 allowed a floating exchange rate for USD to reduce pressure on forex reserves, but the fall continues, hitting $36.85 billion on September 21. The usable reserves are even lower than the figure – only $29 billion, according to the BB.

Moreover, the Bangladesh Bank pumped over $3 billion into banks from its reserves in the two and half months of FY23. Surplus liquidity in the banking system has been decreasing sharply for the past couple of months due to the BB’s hefty interventions in foreign exchange market, according to analysts.