Banks hold Tk1.70 lakh crore in excess liquidity: BB

The Bangladesh Bank has brushed aside a rumour of a liquidity crisis in the country's banking system, saying there is Tk1.70 lakh crore in excess liquidity in the banks at this moment.

"The banking system of Bangladesh is very strong. There is no liquidity crisis in the banking system," central bank spokesperson GM Abul Kalam Azad said at a press conference on Monday afternoon.

He mentioned that conspiratorial messages are being circulated on various social media urging investors to withdraw their bank deposits.

GM Abul Kalam Azad, also executive director of the central bank, said the Bangladesh Bank expects that the demand and supply in the foreign exchange market will become stable by next January-February.

He said the Bangladesh Bank has issued a special warning message to the managing directors of all commercial banks regarding their liquidity situation.

"If there is any disruption in the liquidity management of a bank, the Bangladesh Bank will take steps to solve it with utmost importance. The central bank's policy of 'Repo and Assured Liquidity Support' is always in place for liquidity management," he added.

On Monday morning, Bangladesh Bank Governor Abdur Rouf Talukder sat in a meeting with the managing directors of the country's banks where he asked banks to work to restore the confidence of their customers regarding liquidity.

Besides, it is said that banks have been instructed to verify the prices of products in the international market while opening LCs in order to stop over-invoicing and under-invoicing.

According to data from the Bangladesh Bank, there is the lowest liquidity in the market in the last two years. The excess liquidity was Tk1.74 lakh crore at the end of August this year, compared to Tk2.03 lakh crore at the end of June. The excess liquidity crossed Tk2.31 lakh crore in August 2021.

One of the reasons for the decrease in excess liquidity in the banking sector is the purchase of dollars by commercial banks from the central bank.

The central bank said that up to October of the current fiscal year, $5.58 billion was sold to public and private commercial banks from reserves. According to that, about Tk53,000 crore has gone to the vault of the central bank from the banking system.

In the last fiscal year, the central bank had sold $7.62 billion and received around Tk60,000-Tk70,000 crore from the banking system. The central bank is still selling dollars every day, draining liquidity from the market, bankers said.

About the dollar crisis, the spokesperson said, "Through newspapers, we came to know that the opening of commercial letters of credit (LCs) is closed. This is not correct. As of 10 November, LCs worth $1,263 million were opened. It was $1,232 million at this time last month. LCs worth $4,743 million opened in October."  

However, the central bank data says that LCs worth $23.32 billion have been opened till October this fiscal year compared to $27.32 billion in the same period of the last fiscal year. As such, the opening of LCs dropped by $4 billion year-on-year in the four months through October.

Banks say they are refraining from opening commercial LCs as they do not have enough dollars in hand.

The spokesperson said that the Bangladesh Bank has no restrictions on opening commercial LCs. Banks are opening LCs considering usable foreign exchange funds against their remittance income and expenditure.

"A lot of information on over-invoicing and under-invoicing is available in special monitoring. So far no foreign currency loan has defaulted and the central bank will not allow it to happen," he added.

Industry insiders say that due to the dollar crisis, banks have stopped opening commercial LCs which will lead to a drop in payment pressure in the coming days. From that point of view, the demand for the greenback should decrease a little at the beginning of next year.

However, there is no significant growth in exports and remittances. As a result, it is not possible to say now whether the supply and demand of dollars will balance by February, they added.

At a press conference in August, the central bank governor said that the dollar rates will stabilise in the next two months. Three months after that announcement, the foreign exchange market shows no sign of stabilisation.

At present, four different rates are followed for remittance, export proceeds, LC settlements and sales from reserves. People concerned believe that the different rates are destabilising the dollar market.

Md Sarwar Hossain, director of the Foreign Exchange Policy Department of the central bank, among other officials, was present at the press conference arranged on current affairs.