Cash crunch in some banks halves surplus fund

The surplus fund in the banks of Bangladesh got halved as some banks are facing a cash crunch following a spree of fund withdrawal by the depositors.

At the end of November 2022, surplus liquidity in banks stood at Tk 1,53,000 crore, down from Tk 1,69,586 crore a month ago, as per the latest data from the Bangladesh Bank.

The surplus fund in the banking sector was Tk 2,11,506 crore in January of 2021, was reduced by 50 per cent at the end of December 2022, said the industry insiders.

The excess fund in the banking sector decreased by Tk 16,586 crore in November as the month was very vulnerable as some banks including Islami Bank Bangladesh faced huge pressure of deposit withdrawal following loan irregularities.

A high official of the Bangladesh Bank told The Business Post that few banks are holding the total surplus funds of the banking sector.

On the other hand, most of the banks are in a tight liquidity situation now for the ongoing forex crisis and the recent irregularities in some banks, he added.

Now, Islami Bank Bangladesh, Union Bank Ltd, Social Islami Bank Ltd, First Security Islami Bank Ltd and Global Islami Bank Ltd are facing a cash crisis, as per the central bank data.

Fearful depositors rushed for withdrawing their money from Islami Bank Bangladesh and some other banks after recent loan irregularities in those banks.

The Islami Bank and Social Islami Bank have taken several initiatives to mitigate their fund shortage. The Bangladesh Bank also injected liquidity into those banks.

However, Pubali Bank Managing Director and CEO Mohammad Ali told The Business Post that the surplus fund continues to fall due to the ongoing forex crisis and skyrocketing inflation.

He said that now the expenditure of savers has increased due to the growing inflation. As a result, they are unable to save money, said Ali.

The country’s inflation stood at 8.85 per cent in November and it was 8.91 per cent in October, shows data from the Bangladesh Bureau of Statistics (BBS).

The Pubali Bank head said that the growing transport cost for the fuel price hike was also another reason behind the falling trend of surplus funds.

He hoped that the situation would improve when the US dollar market cools down.

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

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

Bangladesh Bank data show that from July to October this FY, LC settlements stood at $27.94 billion, up from $20.20 billion in the same period last fiscal year. LC settlements grew by 65.96 per cent year-on-year in October.

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.