Dhaka, Bangladesh (BBN)– The overall excess liquidity with Bangladesh’s commercial banks decreased by 18.70 per cent or BDT 230 billion in April mainly due to higher credit growth particularly in the private sector recently.
It came down to BDT 1.0 trillion in the last week of April from BDT 1.23 trillion as on December 31 last year, according to the central bank’s latest statistics.
Lower lending rates might have encouraged the businessmen as well as individuals to borrow more from the banks to meet their demand for funds, officials explained.
“Consumer credits recently witnessed a significant rise recently due to the lower rates on lending,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
The weighted average interest rate on lending fell to 9.62 per cent in April from 9.70 per cent in the previous month while the weighted average interest rate on deposits came down to 4.97 per cent from 5.01 per cent.
He also said the government’s ‘negative borrowing’ from the banking system has also pushed down the excess liquidity with the banks.
“A major portion of the excess liquidity has already been invested in the government-approved securities and BB bills as a risk-free investment,” another BB official explained.
Besides, excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, came down to BDT 42 billion during the period under review from BDT 45 billion, according to the central banker.
The central bankers expect that the falling trend of excess liquidity to continue in the coming months if the present trend of private sector credit growth persists.
On the other hand, the growth in credit flow to private sector rose to 16.21 per cent in April 2017 on a year-on-year basis, which is close to target, set by the central bank earlier, from 16.06 per cent in March last, the BB data showed.
The BB had projected in its first half-yearly (H1) monetary policy statement for the ongoing fiscal year (FY), 2016-17, that the private sector credit would grow at 16.50 per cent in June 2017.
However, the total outstanding loans with the private sector rose to BDT 7.49 trillion in April from BDT 7.39 trillion a month ago. It was BDT 6.45 trillion in April 2016.
Talking to BBN, a senior executive of a leading private commercial bank said consumer financing, SME and agriculture loans have pushed up the overall private sector credit growth in the recent months.
“The upward trend of private sector credit growth may continue in the coming months following implementation of different infrastructures along with mega projects in the country, the private banker explained.
Currently, the government is implementing nine projects under a Fast Track Project Monitoring Committee, headed by Prime Minister Sheikh Hasina.

BBN/SSR/AD