Liquidity surges, credit growth slows in banking sector

A paradoxical situation has emerged in the country’s banking sector. On one hand, banks are holding a record amount of excess liquidity, while on the other, private sector credit growth is declining. As a result, industries and small and medium entrepreneurs are facing a severe financial crunch.

At the end of December 2025, total liquidity in the banking sector stood at over Tk 626,000 crore, which is about 6.8 percent higher than the previous year. Excess liquidity also exceeded Tk 321,000 crore. However, during this period, private sector credit growth dropped to 6.03 percent, down from 7.15 percent earlier. In contrast, deposit growth increased to 10.44 percent. These figures were also highlighted in a roundtable meeting held by the Dhaka Chamber of Commerce and Industry (DCCI) in Motijheel.

According to analysts, banks are holding onto liquidity instead of disbursing loans to avoid risks. At the same time, government borrowing from banks has increased significantly. During the July–January period of the current fiscal year, the government borrowed Tk 73,035 crore from banks, compared to only Tk 9,442 crore during the same period of the previous year—an increase of around 673 percent.

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The pressure of non-performing loans (NPLs) on banks is also rising steadily. By the end of 2025, the total NPL ratio reached 31.2 percent. Particularly, in large loans exceeding Tk 50 crore, the rate of willful default rose to 41.3 percent.

Additionally, 23 banks are facing a capital shortfall of nearly Tk 282,000 crore. The overall capital adequacy ratio of the sector stands at 4.47 percent, while the minimum requirement is 12.5 percent.

In this situation, banks are adopting stricter lending policies to reduce risks, resulting in slower loan disbursement. The contraction of credit has had the most significant impact on the industrial and CMSME sectors. According to data, recovery of term loans in the industrial sector has dropped by nearly 50 percent. Total outstanding industrial loans now exceed Tk 71,000 crore.

Moreover, due to high interest rates, small and medium entrepreneurs are stepping back from new investments. Although the policy interest rate is 10 percent, the effective lending rate has risen to 14–15 percent. Entrepreneurs say that high interest rates, strict conditions, and lack of collateral are making it difficult to obtain bank loans.

Experts say the banking sector is now trapped in a vicious cycle. As non-performing loans increase, banks are reducing lending. This leads to a slowdown in business activities, which in turn hampers loan repayments. Consequently, NPLs continue to rise, further intensifying the credit contraction.

To stabilize the banking sector, DCCI has made several recommendations. These include reducing NPLs in state-owned banks to below 10 percent and in private banks to below 5 percent, taking strict action against willful defaulters, addressing capital shortfalls, controlling excessive lending, lowering interest rates for small entrepreneurs, promoting digital financial inclusion and alternative financing, and strengthening risk-based supervision.

When asked about the issue, DCCI President Taskin Ahmed said that there is no shortage of liquidity in the banking sector, but a lack of confidence and weak risk management remain major obstacles. Without effective reforms and good governance, pressure on the economy may increase further.