Dhaka, Bangladesh (BBN)– Banks’ excess liquidity has crossed the BDT 1.0 trillion-mark again, fuelled by lower private credit growth in a sign that the investment situation has cooled.

Surplus cash surged by nearly 19 per cent to BDT 1,056.46 billion as on December 31, 2019 from BDT 889.50 billion three months before, according to the central bank’s latest statistics. The amount was BDT 1,119.10 billion as on March 30, 2017.

The amount rose to BDT 833.30 billion in the April-June period of the last calendar year from BDT 638.80 billion in Q1 of 2019. It was BDT 774.80 billion as on December 31, 2017.

The country’s banking sector has been saddled with excessive funds since the second quarter of 2019 as the private sector credit growth was slower, according to bankers.

Talking to the BBN, a senior official of the Bangladesh Bank (BB) said there is no sign of excess liquidity in the banking system being ebbed, though the government continues to borrow from banks.

But the central banker insisted the extra liquidity does not mean “idle money” for the banks.

“The major portion of excess liquidity has already been invested in government securities as risk-free investments for banks,” he explained.

That is unlikely to push up the private credit growth in near future as most of the banks are reluctant to provide fresh loans, though the government and top bankers had agreed to bring down both lending and deposit rates to a single-digit from April 01.

After a meeting with the chairmen and managing directors of private banks on December 30, finance minister AHM Mustafa Kamal announced the decision.

Senior bankers acknowledged the majority of banks are following a conservative approach to sanctioning and disbursing fresh loans and this has pushed down the private credit growth in recent months.

The sector’s credit growth fell to 9.83 per cent in December 2019 on a year-on-year basis from 13.20 per cent a year earlier, the central bank data shows.

This growth was 3.37 percentage points lower than the central bank’s target of 13.20 per cent for the first half of fiscal year 2019-20.

Meanwhile, outstanding loans with the private sector rose to BDT 10,531.51 billion in December from BDT 9,588.51 billion a year ago. It was BDT 10,358.15 billion in November 2019.

Talking to the BBN, Mehmood Husain, managing director and chief executive officer of NRB Bank Limited, said the banks now prefer government-approved securities to general investments to mitigate the possible risks.

Mr. Husain predicted that the falling trend in private sector credit growth would continue until April.