Excess liquidity in banks declined in January

Business Desk :
Excess liquidity in the banking sector fell by 5.38% to Tk154,000 crore at the end of January compared to December 2023.

This decline follows a pattern of fluctuations, with the volume of excess liquidity at Tk161,000 crore in December, Tk141,000 crore in November and Tk159,000 crore in October of 2023, according to Bangladesh Bank data.

Of the surplus liquidity in the banking sector, more than 80% was in the form of securities, including treasury bills and treasury bonds.

Banks have been facing a severe liquidity shortage due to factors such as high defaulted loans, increased dollar sales by the central bank, low deposit growth and a high volume of cash held outside banks.

To alleviate the liquidity shortage, many banks resorted to the central bank and took local currency equivalent to more than $1 billion under a recently launched swap arrangement.

To address the ongoing dollar crisis, the Bangladesh Bank sold approximately $30 billion to the country’s banks from its foreign exchange reserve over the past 32 months.

Of this amount, $9 billion was allocated to banks from July to February of FY24, $13.5 billion in FY23 and $7.62 billion in FY22.

Due to the dollar sales, Bangladesh’s gross foreign exchange reserve, as per International Monetary Fund guidelines, decreased to $20 billion on March 19 from $23.25 billion on August 31, 2023.

The excess liquidity in banks increased in July and August of 2023 due to the government’s high bank borrowing.

The government borrowed Tk124,122 crore in FY23, compared with Tk59,833 crore borrowed in the previous financial year.

Of this amount, the government borrowed Tk98,826 crore from the central bank and Tk25,296 crore from the country’s commercial banks in FY23.
Since June 2022, when the amount of excess liquidity in banks was Tk203,435 crore, it has steadily declined.

As a result of the liquidity shortage, interbank borrowing from the call money market has increased in recent days, leading to a surge in weighted average call money rate, which reached 8.7% on Wednesday.

Besides, many people withdrew their deposits and held cash in their hands amid inflationary pressures.

As a result, the amount of cash outside the country’s banks stayed over Tk257,000 crore in January.