Staff Reporter :
Overcoming its recent crisis, Bangladesh’s banking sector is now experiencing a surplus, holding Tk 1.90 trillion in excess liquidity, according to data from Bangladesh Bank (BB).
Experts attribute this shift to a rise in depositor confidence following recent political changes in the country.
Despite the renewed trust, private credit growth slowed to 9.46% year-on-year in August 2024, contributing to the increase in liquidity within banks. Bangladesh Bank’s latest data indicates that 46 banks – including four Sharia-based and 42 conventional institutions – currently hold excess liquidity.
Among them, Sonali Bank holds the highest surplus, followed by Agrani Bank, Rupali Bank, Janata Bank, and the Bangladesh Development Bank (BDBL).
The central bank noted that depositors are increasingly favoring public sector banks over private ones, as they perceive public institutions to offer greater security for their savings. This shift has led to a surge in deposits at public banks. Meanwhile, some Sharia-based banks are facing challenges, according to the central bank’s data.
The situation worsened for some banks after several were acquired by large conglomerates, such as the S Alam Group. As a result, many depositors withdrew their funds, particularly from these institutions. Allegations of large-scale loan defaults involving groups like S Alam, Beximco, and Sikder Group have left some Sharia-based and conventional banks grappling with liquidity shortages.
However, the overall banking sector remains stable, with most banks holding sufficient liquidity for investment, according to a senior BB official.
When contacted, eminent economist Professor Dr. Moinul Islam told The New Nation, “Several banks have regained strength, overcoming the liquidity crisis as depositors have regained trust in them. Some weaker banks are also receiving liquidity assistance from stronger institutions.”
He noted that some banks, including Padma and BASIC Banks, may not overcome their weaknesses and could eventually merge with stronger institutions. A decision regarding these weak banks may be made after the finance minister and BB governor return from the USA.
Policy Impact on Private Credit
The Vice President of the Bangladesh Association of Banks (BAB), Muhammad Abdul Mannan, explained that the drop in private credit growth is due to BB’s contractionary monetary policy aimed at controlling inflation.
Higher interest rates and fluctuations in the exchange rate of the local currency have discouraged entrepreneurs from seeking new investment opportunities. Consequently, many banks are redirecting their excess liquidity into government bonds and bills.