Banks’ excess liquidity falls in July as economy kick-starts

Excess liquidity in Bangladesh’s banking sector fell in July as the economy began overcoming the Covid-19 pandemic-induced shock.

As of July, the excess liquidity stood at Tk 2,03,000 crore, down from Tk 2,31,462 crore a month ago. The June figure of the surplus fund was an all-time high. 

The surplus fund rose 44.24 per cent in July compared to the same month a year ago when the amount stood at Tk 1,40,730 crore.

“No significant economic revival began in July, but consumption started to grow from that month, which may be one of the reasons behind the falling trend of surplus liquidity,” said Sohail RK Hussain, Managing Director and CEO of Meghna Bank.

He said that the opening of letter of credit for imports also started to rise from the month, which could be another reason for the falling trend. 

According to Bangladesh Bank, import payment stood at $4.76 billion in July of the current fiscal year, up by 21.63 per cent year-on-year.

“The demand for the US dollar has increased due to the rise of import payment, which puts pressure on surplus liquidity,” he said.

Hussain noted that the feeble demand for credit would increase in the upcoming months as BB put pressure on banks for increasing lending to the Covid-hit SME sector.

“Industrial expansions and big investment by businessmen halted due to the pandemic are yet to resume,” he said.

Mutual Trust Bank Managing Director Syed Mahbubur Rahman concurred. He said the surplus fund fell due to the increased dollar demand as imports rose, but remittances declined recently. 

Remittance inflow plunged by nearly 28 per cent to $1.87 billion in July, the first month of the current fiscal year, from $2.60 billion in the same month of the previous fiscal, BB data show. 

“The credit demand has slightly increased but the upcoming days are uncertain if the third wave of the virus hits the country,” Rahman said. 

Jamuna Bank Managing Director Mirza Ilias Uddin Ahmed argued that the credit demand would increase in the coming days as the businessmen were gearing up for fresh investments.

He said that the surplus fund would fall more in the coming days as the central bank started to mop up the excess fund from the banking sector. 

Until August 31, BB has pulled out Tk 19,645.5 crore through the Bangladesh Bank bill auction to reduce excess liquidity. 

BB pulled out the fund through six auctions from August 9 to August 31 of 7-day, 14-day and 30-day bills.