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Daily Business News All Daily Business News
11 Jul 2013
Banks sit idle on excess funds

Banks are awash with funds as their excess liquidity rose 57 percent to a record Tk 71,660 crore on May 30 this year from June 30 last year due to weak demand from investors. Cash reserves increased at all types of banks, especially at private and foreign commercial banks, according to statistics from the central bank.

In the last 11 months to June, the private commercial banks held excess cash of Tk 43,791 crore, while it rose by 83 percent to Tk 7,918 crore for the foreign commercial banks. The excess liquidity shot up by 19 percent to Tk 19,162 crore at state-owned banks. Bankers blamed the current political situation for the weak demand for cash from investors.

Nurul Amin, president of Association of Banks Bangladesh, said: “Due to the transitioning political scenario, the investors are now adopting a wait-and-see policy, which has resulted in less credit demand.” He said the excess liquidity rose as imports fell. “Besides, banks sold their foreign currency to the central bank and converted them into local currency. It has also contributed to the rise in excess liquidity.” Amin, however, said the excess liquidity was not lying idle with banks as they had invested the money in government bonds.

The amount of investment in bonds might be around Tk 50,000 crore, he said. Zaid Bakht, research director of Bangladesh Institute of Development Studies, said, in 2011-12 inflation rose on the one hand and the balance of payment came under pressure on the other. He said the central bank also imposed restrictions on imports, especially luxury items, as it followed a cautious monetary policy to contain inflation. As imports fell, the excess liquidity with banks gradually increased.

Bakht said banks became particularly cautious in approving loans following several scams including that involving Hall-Mark, which prompted moves from the central bank and the Anti-Corruption Commission (ACC). The economist backed the ACC move, saying the recent scams were not common banking irregularities, rather fraud, and criminal proceedings should be taken against such fraudulent activities. He also said the appetite for investment was low due to political uncertainties in recent times, which ballooned bank’s excess liquidity.

The government should have taken a number of measures, including cutting duty on capital machinery and raw materials, in the budget to increase investment demand, he said.

Source :: The Daily Star