Excess liquidity continues to pile up in the banks amid economic downturn caused by Covid-19 pandemic.
The amount of surplus liquidity stood at Tk 1.60 lakh crore as on August, according to Bangladesh Bank (BB).
The excess liquidity in banks stood at Tk 1.40 lakh crore in June.
Admitting the matter, Ali Reza Iftekhar, Managing Director and CEO of Eastern Bank Limited said, “Majority of the banks has surplus liquidity created by various supportive measures from the central bank. A sluggish economic activity is another reason for banks’ excess liquidity.”
He noted that the excess liquidity does not necessarily mean ‘idle money’ for the banks as major portion of the liquidity has already been invested in government treasury bills and bonds.
“We are providing loans to genuine customers after proper risk assessment though demands for loan is low this year due to economic downturn triggered by Covid-19 pandemic.”
Commenting on the issue, economist Dr Ahsan Mansur said, rising foreign exchange reserve, slow private sector credit growth and central banks’ multifarious measures have led to liquidly expansion in the banking sector.
He mentioned BB’s measures including cut in policy rates, cash reserve requirement (CRR), alone created around Tk 60,000-Tk 70,000 crore excess liquidity in the banking system. “Ups and downs in overall banking system’s liquidity largely depend on the country’s economic conditions and a surplus liquidity will be absorbed if credit demand picks up.”
“The scheduled banks can utulize the excess liquidity by intensify lending to businesses under the pandemic bailout packages,” Dr Zahid Hussain, former lead economist of World Bank told The New Nation. Earlier, the government offered a number of packages worth Tk.111, 141 crore to cope businesses and companies with the adverse impacts of Covid-19.
“Packages involving big sum of money were designed to help economy withstand an unprecedented downturn. As the responsibility of bulk financing under the packages has fallen on the banking sector, they should speed up the lending to help boost economic activities,” said Dr Zahid Hussain.
Regarding lending under the stimulus package, he said banks have only focused on lending to large companies denying credit to small and medium-sized businesses, which have been playing a vital role in keeping the domestic economy vibrant.
” Thousands of SMEs have become inoperative in the wake of pandemic shocks leading to many jobless. Banks should ensure access to credit for the cottage, micro, small and medium enterprises so that they can be brought back to business again. Such a support can restore thousands of jobs that wiped out amid pandemic shutdown,” he added.
The government rolled out 20 stimulus packages after it reported the maiden cases of Coronavirus infections on March 8. The combined support now accounted for 3.7 per cent of the country’s gross domestic product (GDP).
The packages have been provided in the form of low-cost loans to micro, small, medium and large industries and services, food security, social protection and special allowances as the pandemic-induced shutdown paralysed the economy, wiping out millions of jobs and creating new poor.
Four months after its launch, around Tk 29,200 crore was doled out to the recipients as of July, according to the latest progress report of the stimulus packages.
For the cottage, micro, small and medium enterprise sector, the picture is rather gloomy.
The government announced Tk 20,000 crore as the working capital support to the pandemic-hit small businesses at 9 per cent interest rate – four per cent to be paid by the borrower and five per cent interest by the government as subsidy.
Till July, only Tk 1,491 crore was disbursed for the sector where 6,432 firms got the loan through 76 banks and financial institutions. As of end of last month, it went up to 20 per cent with number of enterprises 11,183, said sources.
