Excess liquidity in the banking sector is on the rise on a strong growth in remittance and export earnings, easing up the severe liquidity crunch that banks have been facing since last year.
Liquidity available in the banking system that exceeds the needs of banks is called excess liquidity.
The total excess liquidity increased by 2,515 crore in April in the banking sector, reaching Tk. 66,764 crore, according to Bangladesh Bank data released recently.
The increase in liquidity cooled down the Call Money Market, keeping the Call Money Rate stable at 4.5 percent for last couple of months.
The high inflow of remittance and export earnings increased dollar holdings of banks. As a result, banks are not purchasing dollar at a large scale from Bangladesh Bank, which contributed to the increase of liquidity in the banking system, said industry insiders.
The remittance inflow stood at $16.42 billion in 2018-19 fiscal year, registering a 9.64 percent increase as compared to 2017-18 fiscal year, according to the central bank data.
Export earnings registered 11.15 percent growth over during first 10 months of current fiscal year against 3.88 percent import growth.
Increase in dollar holdings of banks kept exchange rate stable at Tk. 84.5 in May and June.
Increased inflow of foreign currency provided the banks with a little comfort; however, banks are still facing problems with availability of fund for things such as loan disbursements, said Md Arfan Ali, managing director of Bank Asia.
As a result, private sector credit growth is still sluggish at 12 percent level, he added.
The increase of excess liquidity doesn’t seem to have any impact on lending rates due to high deposit cost, Mr. Ali said.
He said, the prevailing, somewhat comfortable, liquidity position will not continue for long, as the government’s borrowing has started to pick up at the end of just concluded fiscal year. Moreover, government-set target to borrow Tk. 47,364 crore in the new fiscal year is likely to affect the liquidity position within the sector adversely, he apprehended.
According to available data, Government borrowing increased 47.44 percent on year-on-year basis, ending in May of this year; the increase was negative a year back.
The Weighted Average Lending Rates continue to rise, registering 9.51 percent in May from 9.46 percent in previous month, central bank data shows.
However, most banks are lending at double digit, ignoring instruction from government to bring down lending rates to single digits.
In the new budget, finance minister announced to bring down the interest rate to single digit.