Kazi Zahidul Hasan :
Excess liquidity continues to rise in the banking system as a result of sluggish investment demand.
Referring to the piling up of excess liquidity as a bad sign for the economy, economists have warned that if the surplus liquidity is not channelise through investment it will slide down the expansion of the gross domestic product (GDP).
According to a Bangladesh Bank report, excess of liquidity in banks has already reached over Tk 126,000 crore.
“The idle fund that piled up the banking system might leave an adverse impact on the economy. Decline in the rate of growth in credit against deposit has created the situation,” Dr AB Mirza Azizul Islam, a noted economist, told The New Nation on Friday.
According to him, tighter lending practices by the banks, high cost of funds and low cost overseas borrowing by the entrepreneurs
and sluggish investment climate are contributing factors to the accumulation in excess liquidity in commercial banks.
“To manage the swelling liquidity is a big challenge for the banks. They should find out available options to deal with the excess liquidity. Banks should offer investment friendly policies to lure additional investment to productive sectors,” said Dr Mirza Azizul Islam, also a former adviser to the caretaker government.
He said private investment acts as a catalyst for accelerating GDP growth. But a dismal picture in private investment is persisting in the country dragging down the GDP growth.
Referring to media reports, he said, the private investment showed a 25 per cent average growth in between the years 2010 and 2015. But it came down to 15 per cent as on September 2016, putting pressure on banks for accumulating idle fund.
“Excess liquidity might affect bank’s profitability to a large extend. To absorb the excess liquidity, banks may opt for lending to unproductive sectors, consequently leading to high credit risk making them vulnerable,” he noted.
Dr AB Mirza Azizul Islam also called for a policy intervention by the central bank to drain the excess liquidity from the banking system.
“High liquidity in banks has increasingly become worrisome for the economy,” Dr Salehuddin Ahmed, a former Bangladesh Bank governor told, The New Nation yesterday.
He mentioned excess liquidity can potentially lead to many problems such as poor growth in bank lending, funding to unproductive, undesirable and speculative borrowing, ultimately harming their profitability and stability.
“The banking system liquidity continues to rise suggesting that some measure is needed to reign in the excess liquidity. Strategic efforts to be put in place to addressing the issue of high interest rates, ensuring the flow of credit to the real economic sectors like export-oriented industries, SMEs, agro processing and may others to absorb the huge amount of excess liquidity,” said Dr Salehuddin Ahmed.
He warned that if the high liquidity in the banking system is not translated into credit expansion to productive sectors, it will affect GDP growth and employment generation.
Excess liquidity continues to rise in the banking system as a result of sluggish investment demand.
Referring to the piling up of excess liquidity as a bad sign for the economy, economists have warned that if the surplus liquidity is not channelise through investment it will slide down the expansion of the gross domestic product (GDP).
According to a Bangladesh Bank report, excess of liquidity in banks has already reached over Tk 126,000 crore.
“The idle fund that piled up the banking system might leave an adverse impact on the economy. Decline in the rate of growth in credit against deposit has created the situation,” Dr AB Mirza Azizul Islam, a noted economist, told The New Nation on Friday.
According to him, tighter lending practices by the banks, high cost of funds and low cost overseas borrowing by the entrepreneurs
and sluggish investment climate are contributing factors to the accumulation in excess liquidity in commercial banks.
“To manage the swelling liquidity is a big challenge for the banks. They should find out available options to deal with the excess liquidity. Banks should offer investment friendly policies to lure additional investment to productive sectors,” said Dr Mirza Azizul Islam, also a former adviser to the caretaker government.
He said private investment acts as a catalyst for accelerating GDP growth. But a dismal picture in private investment is persisting in the country dragging down the GDP growth.
Referring to media reports, he said, the private investment showed a 25 per cent average growth in between the years 2010 and 2015. But it came down to 15 per cent as on September 2016, putting pressure on banks for accumulating idle fund.
“Excess liquidity might affect bank’s profitability to a large extend. To absorb the excess liquidity, banks may opt for lending to unproductive sectors, consequently leading to high credit risk making them vulnerable,” he noted.
Dr AB Mirza Azizul Islam also called for a policy intervention by the central bank to drain the excess liquidity from the banking system.
“High liquidity in banks has increasingly become worrisome for the economy,” Dr Salehuddin Ahmed, a former Bangladesh Bank governor told, The New Nation yesterday.
He mentioned excess liquidity can potentially lead to many problems such as poor growth in bank lending, funding to unproductive, undesirable and speculative borrowing, ultimately harming their profitability and stability.
“The banking system liquidity continues to rise suggesting that some measure is needed to reign in the excess liquidity. Strategic efforts to be put in place to addressing the issue of high interest rates, ensuring the flow of credit to the real economic sectors like export-oriented industries, SMEs, agro processing and may others to absorb the huge amount of excess liquidity,” said Dr Salehuddin Ahmed.
He warned that if the high liquidity in the banking system is not translated into credit expansion to productive sectors, it will affect GDP growth and employment generation.
