Liquidity in banks soared around to Tk 4.15 trillion as of January this fiscal year (FY) 2020-21 against the minimum requirement of Tk 2.09 trillion, according to the latest data of Bangladesh Bank (BB).
The sectoral distribution of total liquid assets as of January 2021 in the form of cash in tills and balances with Sonali Bank, CRR, excess reserves, foreign currency balances with Bangladesh Bank and unencumbered approved securities were 4.54 per cent, 13.52 per cent, 10.01 per cent, 3.70 per cent and 68.24 per cent respectively.Banks’ liquidity stood at Tk3.357 trillion in June, FY 20.
BB’s major economic indicator report of March 2021 mentioned that the Advance Deposit Ratio (ADR) in the banking sector remained below the allowable limit set by BB up to September 2020.
“This indicates that the liquidity conditions in the banking sector remained adequate. On the other hand, the banking sector maintained LCR much above the minimum requirement of 100 per cent throughout FY20, indicating banks had high-quality liquid assets that would cover the banks' net cash flows for a minimum of 30 days,” the BB report added.
The banking sector has seen a spike in liquidity volume due to sluggish demand for investment in the wake of the Covid-19 pandemic since March 2020.
“Investment and export-import activities could not return to the pre-corona shape. As a result, the liquidity in banks became double the requirement,” said Dr Salehuddin Ahmed, former governor of BB.
He also said the central bank has relaxed different policies to increase fund flow in the banking sector to boost credit to the private sector, but the coronavirus pandemic is lingering and remains a barrier to creating demand for new investments.Data show that banks’ liquid asset has increased by Tk 785.59 billion in the first six months of the current fiscal year.
BB’s economic update published in February of FY21 showed that the state-owned banks had liquid assets of Tk 1.409 trillion in December FY21, and specialized banks had Tk 13.66 billion.
Private banks (other than Islamic) had Tk 1.821 trillion, Islami banks Tk 547.34 billion and foreign banks had Tk 351.34 billion till December of FY 21.
Dr Ahsan H. Mansur, executive director of Policy Research Institute of Bangladesh, said the banks are bearing the brunt of excess liquidity due to a fall in new investments.
BB’s move to lower cash reserve ratio (CRR), statutory liquidity ratio (SLR) also caused a rise in banks’ liquidity and if the central bank decides to return to previous CRR and SLR rates, banks’ liquidity will drop by Tk 500-600 billion, he added.
Dr Mansur said banks are also providing minimum interest rate against deposits to discourage deposits.