Banks Overflowing with Cash, No One to Take Out Loan

Most banks were suffering from a severe liquidity crisis before the coronavirus pandemic. Private Banks were struggling to maintain the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Bank officials competed to grab other bank deposits at higher interest rates to provide liquidity.

However, the situation has changed due to the outbreak of the pandemic. Now literally the tide of liquidity is flowing in the banks.

Expatriates have sent more remittances than ever before in the outgoing 2020-21 fiscal year. From July 1 last year to June 26 this year, expatriates sent a total of 24589 million US dollars. In the same period of the previous fiscal year 2019-20, they sent 18031 million dollars.

It shows that the expatriate income has increased by 36 percent in one year. Bangladesh Bank is buying the dollars sent by them from the banks. In contrast, giving cash. Although the interest rate on deposits is low, all the money is being deposited in different banks. But the banks are not disbursing many loans outside the government incentives. Because traders are not going for new investments. They are waiting for the right time. And so the massive amount of lazy money is growing in commercial banks.

It is learned that at the end of last April, the banks had excess liquidity of Tk 2 lakh 1 thousand 546 Crore. A large part of that money they have invested in government bonds and other banks' perpetual bonds. Even then, they have liquidity of Tk 40-45 thousand Crore. In June last year, the liquidity in the banking sector was 1 lakh 39 thousand 578 crore. Meanwhile, the government is not raising more money through bonds now as more savings certificates are being sold than in demand.

Banks are now trying to cover the cost of deposits by investing the money in various government bonds and bonds of other banks. However, it is not able to invest there as per the demand. Banks have lowered deposit interest rates to cope with excess liquidity pressures.

Even a year ago, some banks collected three- to six-month term deposits at an interest rate of more than 8 percent, but now they have reduced it to 3-5 percent. Even then, the top executives of several banks said that the bankers were struggling to maintain excess liquidity. They said the average interest rate on bank deposits has come down to 4 percent. If the situation does not increase investment or credit growth, the interest rate on bank deposits will soon come down to 1-2 percent.

Bankers say due to Coronavirus, it has created an overflowing liquidity situation in the banking sector. This is an indication that the economy is slowing down. It could have a negative impact on the economy in the long run.

In this context, the managing director (MD) of a private bank said, the bank will create a massive amount of lazy money - this is normal. Because, the loan that banks have given is not coming back. So the bankers are very worried and cautious. There is no investment in the country. Imports are also inadequate. No new factories are being set up. So good customers do not want to take loans. On the contrary, the defaulters are seeking new loans. That is why we are in big trouble.

Syed Mahbubur Rahman, former chairman of the Association of Bankers Bangladesh (ABB), said, ‘We want to invest; But the investment that we will make, there must be that demand. Everything has slowed down because of Coronavirus. There is no new investment.

According to the responsible officials of the Bangladesh Bank, when the coronavirus infection started, the supply of money in the market was increased under various incentive packages to increase the demand in the economy. Again, remittances to banking channels amid Coronavirus are much higher. There has also been good growth in bank deposit collection. But there is no long-term demand for new loans outside of incentive loans. All in all, the liquidity and lazy money quoted by the bank has increased. They mentioned that the amount of lazy money will increase further as Covid-19 has taken a terrible form again.

Merchants say the situation has worsened as new loans have been taken as Coronavirus grows. This money accumulated due to non-investment for a long time has made the banks suffer. Those who regularly do a lot of shopping and shopping have kept their hands off the cost. The fact that the situation is normal also depends on the Corona epidemic.

And financial sector analysts say the Corona situation has reduced demand for many sectors of goods and services. This is not a good sign at all for the economy. Because this money would have been invested if the economy had maintained its normal pace. In this situation, besides increasing the investment of banks in the private sector, economists think that structural reforms are needed for CSME sector loans.