Excess liquidity in the county’s banking sector soared in December as depositors returned their money in banks as confidence crisis had appeared to be eased.
Bangladesh Bank data showed that excess liquidity increased to Tk 2,15,002 crore in December from Tk 2,07,623 crore in November and Tk 1,98,544 crore in October.
Banks’ excess liquidity dropped after the countrywide protests over students’ quota reform in July.
From Tk 1,95,824 crore in June, the amount dropped to Tk 1,78,713 crore in July, Tk 1,75,337 crore in August and Tk 1,78,091 crore in September and.
Although Sheikh Hasina as prime minister resigned and fled to India in August 5, the unrests continued until September.
Depositors withdrew funds due to soaring inflation and widespread irregularities in banks under the Awami League regime.
BB’s restructuring of 11 bank boards and governor Ahsan H Mansur’s comments terming some 10 banks near bankrupt and not providing any support to these banks had worsened the situation further.
However, the depositors’ confidence began to build and the depositors started bringing back their money to banks after the Bangladesh Bank declared bailout facilities to rescue crisis hit banks, experts said.
The central bank provided such banks Tk 7,350 crore under the credit guaranteed scheme and TK 23,500 crore as special liquidity support by December 2024.
High deposit rate also attracted depositors to keep their money in banks, they added.
The combined effects of contractionary monetary policy and the tight liquidity environment in the money market have led to a significant rise in interest rates.
Therefore, banks’ deposits increased to Tk 17.76 lakh crore in December from Tk 17.62 lakh crore in November.
The volume of cash circulating outside the banking system also declined to Tk 2.76 lakh crore in December from Tk 2.77 lakh crore in November.
Of the surplus liquidity in the banking sector, more than 80 per cent was in the form of securities, including treasury bills and treasury bonds.
According to the monetary policy statement announced on February 10, the banking sector in Bangladesh has been facing some liquidity crunch since June 2021, which has continued throughout the first half of the fiscal year 2025.
It also said that this tight liquidity situation is due to several factors, including BB’s dollar sale, slow loan recovery, a high volume of non-performing loans, sluggish deposit growth attractive interest rates.
The MPS also said that increased cash holding by the public stemming from a lack of confidence in the banking sector due to widespread irregularities and scams, particularly involving some banks run by S Alam Group also played a crucial role in liquidity crunch.
Additionally, the implementation of contractionary monetary policy to control inflation has further limited the liquidity in the banking sector, it said.
