Liquidity burden hits banks

The banking sector credit increased by 7.0 per cent only in the year 2013, as investment inertia persisted throughout the year in the wake of political turmoil, while it increased by 12 per cent in 2012, official sources said.
They said, political programme like blockade and hartal caused inertia and affected the growth of national economy. The banks now bear the burden of excess liquidity amounting to Tk 85,000 crore.
The national economy suffered a loss of Tk 49,000 crore due to long spell of hartal and nationwide blockades, according to an estimation of Center for Policy Dialogue (CPD).
The credit portfolio of the overall banking sector reached Tk 4,63,870 crore in December 2013 against deposit of Tk 6,27,296 crore, according to a statistics of Bangladesh Bank (BB).
In 2013, eleven commercial banks failed to register any credit growth compared with the previous year amid sluggish investment demand.
While talking to The New Nation, officials of these banks reported that borrowers did not show interest in taking fresh loans although they had sanctioned a big chunk of fund to many business entities and corporate groups.
“We created a fund of Tk 2,000 crore for the investors last year, but finally we could not disburse the fund due to apathy of the borrowers,” said a high official of a private bank.
“Credit expansion remained low in 2013 due to the sluggish investment climate prevailing throughout the year on account of the political turmoil,” a senior BB official told The New Nation yesterday.
 “Lesser credit demand from the investors not only helped pile up a huge amount of excess liquidity in the banking system but also affected profitability of the banks last year,” he noted.
“The country’s banking sector faced challenges on several fronts last year in the face of restive political programmes enforced by the opposition parties,” a senior Rupali Bank official told The New Nation preferring anonymity.
Troublesome politics was mainly responsible for the disappointing credit growth in the banking sector in 2013, said former finance adviser of the caretaker government AB Mirza Azizul Islam.
He said, both the banks and investors took ‘wait and see policy’ considering risk factors in new investment, as there was an instability in the country’s political arena.
“Stability in the country’s political arena is in sight and it may contribute to pick-up in bank credit,” he observed.
Emphasizing the need for interest rate cut, Dr Mirza Azizul Islam said, “The central bank should look into the matter immediately because low funding cost can create investors appetite for loans making a sold path of credit growth in banking sector.”
“It (central bank) should give special emphasis on providing easy loans for productive sectors in order to bring the banking system’s excess liquidity into the investment to accelerate economic growth and job creation,” he added.