Weak investment climate: Banks awash with idle liquidity

Muhammad Ayub Ali :

Following a severe liquidity crunch throughout 2024, Bangladesh’s banking sector is now witnessing the opposite scenario — a surge in idle liquidity.
Instead of signaling financial strength, the rise highlights a deeper malaise in the economy, where declining private investment and sluggish credit demand are leaving banks awash with idle cash.
However, the broader economic picture remains bleak. Political uncertainty, recurring social unrest, and an escalating energy crisis have combined to create a climate where investors are unwilling to take risks.

With the worsening shortages of gas and electricity and no short- or medium-term strategies in place to secure energy supply, the sharp decline of confidence in the economy is evident. The result is slower industrial activity and weaker growth momentum.

According to the latest figures from Bangladesh Bank, by the end of June 2025, the country’s 61 scheduled banks were holding surplus liquidity of Tk 2,83,639 crore. During the same period, total liquidity stood at Tk 5,86,305 crore, while the actual requirement was a mere Tk 3,266 crore.
This trend has deteriorated rapidly compared to last year. In June 2024, banks reported total liquidity of Tk 4,73,404 crore against a requirement of Tk 2,80,739 crore, leaving a surplus of Tk 1,92,665 crore.

Within a year, the surplus rose by nearly Tk 91,000 crore, underscoring the steep fall in private sector borrowing and credit expansion.
Economists warn that the swelling surplus signals stagnation, not stability. Dr. Zahid Hossain, former chief economist of the World Bank’s Dhaka office, explained that “Deposits have increased only slightly, yet liquidity has surged. This is mainly because demand for corporate loans has fallen significantly, while central bank dollar purchases have injected additional money into the system. What we are seeing is a liquidity surplus that reflects weak private sector activity rather than genuine financial strength.”

The report shows that public banks account for a large share of this idle money. By June 2025, the six state-owned banks held liquidity of Tk 1,83,794 crore against a requirement of Tk 79,983 crore, leaving a surplus of over Tk 1,03,800 crore. A year earlier, their liquidity was Tk 1,44,312 crore — meaning an increase of nearly Tk 39,500 crore within twelve months.

While surplus liquidity may appear to provide banks with breathing space, in reality it underlines the weakness of the overall economy. With investment slowing, job creation stalling, and industrial expansion constrained, the country is falling short of its growth targets.
However, there seems to be no clear timeline visible for resolving the political uncertainty or mitigating the energy shortages which are weighing down confidence.
In short, Bangladesh’s banks may be surged with cash, but stability, reforms, and productive investment opportunities are far cry as the money remains idle dragging growth and pushing the economy further into uncertainty.