Dhaka, Bangladesh (BBN)- Excess liquidity in the country's banking sector reached a record high at the end of April last and the poor demand for funds is still persisting.
The demand for funds in the inter-bank call money market is now so poor that, on Sunday, most of the deals were concluded at rates between 0.25 percent and 0.50 percent.
Experts attribute the buildup of the excess liquidity in the banking system to poor investment situation, mainly triggered by the ongoing global recession.
The overall excess liquidity with the commercial banks stood at BDT 270 billion in April last, representing a 25 percent growth over that in February last, according to the Bangladesh Bank (BB).
The amount of excess liquidity was BDT 215 billion and BDT 237 billion in February and March 2009 respectively, the BB data showed.
The amount of excess liquidity in April included both marketable and non-marketable government securities, worth BDT 180 billion, under the possession of different commercial banks.
"The demand for government treasury bills and bonds has increased in recent months due mainly to lower call money rate," a BB senior official told BBN in Dhaka.
The call money rate, in some cases, came down to as low as 0.10 percent in inter-bank money market on Sunday as the banks are now awash with excess liquidity.
The BB official also said some banks have invested a substantial amount in the treasury bills and bonds to minimize their cost of funds.
"Currently, the banks can invest over BDT 50 billion in different sectors after maintaining reserve with the central bank to meet their foreign exchange liability," he added.
The government sometimes issues non-marketable securities against liabilities of different state-owned enterprises that are traded in the secondary market.
The value of total non-marketable securities stands at BDT 73.225 billion. The government issued these securities against the liabilities of Bangladesh Petroleum Corporation (BPC).
The government had earlier provided the bonds to the state-owned Sonali Bank Limited and Janata Bank Limited amounting to BDT 55 billion and BDT 18.22 billion respectively to clear BPC's fuel oil import related liabilities.
Besides, the government issued Bangladesh Telecommunications Company Limited and Shipping Corporation bonds to meet the liabilities of the two SOEs, the BB official confirmed.
Bankers, however, said the excess liquidity reached record high level because of falling trend in credit flow to the private sector in recent months.
The private sector credit growth came down to 18.18 percent in March from 19.84 percent in February this year, according to the central bank statistics.
The credit flow to the private sector declined by 18.18 per cent to BDT 323.41 billion in March last on a year-on-year basis from 21.16 percent or BDT 310.61 billion during the matching period of the previous year, the BB's data showed.
"We expect that project loans will go up from first quarter of the fiscal year 2009-10," Managing Director and Chief Executive Officer of the Agrani Bank Limited Syed Abu Naser Bukhtear Ahmed told BBN in Dhaka on Sunday.
Non-acceptance of reverse repurchase agreement (repo) by the central bank since March 25 last also contributed to the decline in call rate sharply, market operators said.
"The central bank does not accept the reverse repo. Instead it is injecting fresh funds through purchase of the greenback from the commercial banks continuously," a senior treasury official of a commercial bank told BBN while explaining reasons for the sharp fall in the call money rate.
BBN/SS/SI/AD-15Junely09-12:57 am (BST)