Last year stakeholders worried about liquidity crisis now about idle money

This time around last year stakeholders worried about liquidity crisis and now about the excess money lying idle in the banks, exposing high volatility of the banking sector.

Excess liquidity or idle money in the banks has surpassed Tk 1.5 lakh crore till September. According to reliable sources in Bangladesh Bank, it has stood at Tk 1.73 lakh crore till November.

At the end of December, it may increase to 2 lakh crore. The bankers said that in such a situation, even though the portfolio is big, the foundation of the bank is weak. Because, just as the crisis of money is a kind of danger, so is the excess liquidity has been awaiting investment. However, some people say that this scene is temporary. If the coronavirus pandemic situation normalises, investment will increase, putting an end to idle money. 

When asked, the managing director of a private bank said that there will be a mountain of idle money in the bank - this is normal. Because, the loan that I have given is not coming back. So, the bankers are very worried and cautious. 

He also said, “There is no investment in the country. Imports are also inadequate. No new factories are being set up”.

“So good customers do not want to take loans. On the contrary, the defaulters are seeking new loans. If not, some people are threatening bankers not to provide loan. That is why bankers are in big trouble,” he added.

According to the updated report of BB, the total liquidity in the banking sector till September this year amounted to Tk 3,71,990 crore.

Of these, Tk 1,15,883 crore is in the hands of six state-owned banks, Tk 1 ,312 crore in the hands of three specialized banks, Tk 1,78,838 crore in the hands of 34 private (conventional) banks, Tk 42, 462 crore in the hands of eight Islamic banks and in nine foreign banks have Tk 33,496 crore.

According to the banking policy, all banks have an obligation to maintain a minimum liquidity of Tk 2,02,339 crore till September. Excluding the mentioned amount from the total liquidity, all that remains is excess liquidity or idle money. As of September this year, the amount of excess liquidity or lazy money in the banking sector stands over Tk 1,69,650 crore.

Pubali Bank Managing Director (MD) Abdul Halim Chowdhury said the temporary excess liquidity has increased due to coronavirus pandemic.

He also said, “There will be no liquidity. Liquidity will run out between December and June. Because, many deferred LCs will expire in March. Then it will take a lot of money to pay the LC's liability”. 

“Also now that the wheel of the factory has started turning, it will gradually become more active. Then such a situation will no longer exist”, he pointed out.

It is known that most of the banks were suffering from severe liquidity crisis even 1 year ago. Private banks were struggling to maintain the Cash Reserve Rate and Easily Exchangeable Assets. Bank officials competed to grab other bank deposits at higher interest rates to provide liquidity.

However, due to the outbreak of the epidemic, the situation has completely changed. Now the tide of idle liquidity is flowing in the banks. A year ago, there was a drought in the country's private sector credit growth due to the liquidity crisis. Even though there is a tidal wave of liquidity in the banks now, there is no demand for loans. 

Bankers are reluctant to lend at the moment due to extra caution despite repeated applications for new investments. As a result, the country's private sector credit growth has been only 7.61 percent till October.

However, more than Tk 50 lakh crore has been disbursed to the private sector under the incentive package announced by the government. The country's import sector, which has been hit hard by the coronavirus pandemic, has yet to turn around. Compared to the same period of the previous financial year, the import during July-October decreased by 12.99 percent. However, at the end of September, the excess liquidity in the country's banking sector exceeded Tk 1.5 lakh crore, the highest in the history of the country's banking sector.

Banks have lowered deposit interest rates to cope with excess liquidity pressures. Even a year ago, some banks collected three- to six-month term deposits at an interest rate of more than six per cent, but now they have reduced it to 3-5 per cent. Even then, the top executives of several banks said that the bankers were struggling to maintain excess liquidity.

They said the average interest rate on bank deposits has come down to four percent. If the situation does not increase investment or credit growth, the interest rate on bank deposits will soon come down to 1-2 percent.

ask/wi