Bank deposits are rising, but that money isn’t being invested as loans. As entrepreneurs show declining interest in setting up new factories or expanding businesses, excess liquidity is piling up in the banking sector. As of the end of June, this idle or surplus liquidity surpassed 4 trillion taka for the first time. During the same period, private-sector credit growth fell to its lowest level in history.
According to Bangladesh Bank data, surplus liquidity in the banking sector stood at 4.08 trillion taka as of the end of June, up from roughly 3.37 trillion taka at the end of May — an increase of more than 700 billion taka in a single month.
Meanwhile, bank deposits grew 10.74 percent in June compared to the same period the previous year. By contrast, private-sector credit growth fell to just 4.47 percent. In other words, money is flowing into banks far faster than it is flowing out as loans.
Economists and bankers say this situation isn’t simply about excess money accumulating in the banking sector — it’s also a significant signal of weakness in the country’s investment climate. Entrepreneurs are reluctant to take out loans, while banks, drawing on past experience with lending irregularities and defaulted loans, remain cautious about extending new credit. As a result, the private sector faces pressure from both loan demand and loan supply.
Why aren’t entrepreneurs borrowing?
According to bankers, several factors lie behind entrepreneurs’ reluctance to invest. The biggest problem is the unreliable supply of gas and electricity. If a factory cannot maintain regular production, paying interest on a bank loan becomes a heavy burden for the entrepreneur.
Alongside this are high interest rates, rising costs of doing business, political and economic uncertainty, law-and-order conditions, and uncertainty around tax and policy. For these reasons, many entrepreneurs are unwilling to take on the risk of new investment.
Bankers say most of the loans currently being disbursed go toward working capital, raw material imports, and day-to-day business needs. Demand for loans to establish new industries or undertake major business expansion remains comparatively low.
Banks growing more cautious too
Alongside declining borrower interest, bank lending practices have also changed significantly. In the past, large volumes of loans were disbursed without adequate scrutiny. A significant portion of that money was never used for genuine investment, and much of it later turned into defaulted loans.
The banking sector currently faces heavy pressure from defaulted loans. As a result, banks are exercising greater caution in verifying a borrower’s business, collateral, cash flow, and repayment capacity before extending new loans.
In particular, as weaker banks’ lending capacity has declined, credit flow to the private sector has contracted further. As a result, even where healthier banks have available funds, they are investing in comparatively safer government bills and bonds rather than lending to riskier sectors.
Money exists, but nowhere to invest it
Surplus liquidity in banks doesn’t mean all that money is sitting idle as cash. A large portion of these funds is invested in government treasury bills, bonds, the call money market, and other instruments. These investments can be liquidated when needed. But from the banks’ perspective, the core problem is that demand for credit in productive sectors simply isn’t materializing. As a result, funds collected from depositors cannot be disbursed as loans at the desired rate.
Former President and CEO of Bank Asia Md Arfan Ali said that with no improvement in the business environment, entrepreneurs currently show little interest in borrowing. He noted that a large share of the surplus liquidity sits with a handful of banks, which consider it safer to park funds in government bills and bonds rather than take on risk.
He said investment demand will not rise unless electricity, gas, and infrastructure problems are resolved. Even if lending rates fall, the situation will not change significantly unless the investment environment improves.
Deposits rising, loans not
The current state of the banking sector is most clearly understood by comparing deposit and credit growth.
Bank deposit growth stood at 10.74 percent in June. During the same period, private-sector credit growth was just 4.47 percent. In other words, depositors are putting money into banks, but entrepreneurs aren’t borrowing that money to invest.
As this gap widens, so does the surplus liquidity in banks.
Two years ago, surplus liquidity in the banking sector stood at 1.93964 trillion taka. By June of last year, it had risen to 2.8364 trillion taka. By June this year, it has surpassed 4.08 trillion taka. In other words, surplus liquidity in the banking sector has more than doubled in just two years.
Will lower interest rates boost investment?
To increase credit flow to the private sector, Bangladesh Bank recently cut its policy interest rate by 50 basis points. The repo rate was reduced from 10 percent to 9.5 percent.
Additionally, a 600 billion taka stimulus package has been announced to aid economic recovery and reopen shuttered factories. Of this, banks holding surplus liquidity will supply approximately 410 billion taka.
This central bank initiative could lower lending rates and boost entrepreneurs’ interest in borrowing. However, those familiar with the matter say that lowering interest rates alone cannot resolve the investment stagnation.
For an entrepreneur, the interest rate on a loan matters, but so does the environment for running production with that loan. Without gas and electricity, with transport disruptions, rising business costs, or frequent policy changes, even a low-interest loan will not encourage investment.
Gas and power remain the biggest obstacle
Agrani Bank Chairman Syed Abu Naser Bakhtiar Ahmed believes the current excess liquidity in the banking sector is not permanent. He said deposits have risen in banks due to the passage of the budget and increased remittance flows. However, since this money belongs to depositors, banks must invest it in productive sectors.
He said greater priority needs to be given to micro, cottage, small, and medium entrepreneurs under current conditions, while some caution should be exercised for now regarding large investments.
On the investment environment, he said uninterrupted supply of fuel oil, gas, and electricity is most important. Alongside this, the supply system needs improvement and the cost of doing business needs to come down. He believes gradual improvement is occurring in these areas.
Without industrialization, idle funds could grow further
A large volume of surplus liquidity in banks might, on the surface, appear to reflect banks’ strong liquidity capacity. But this isn’t always good news for the economy.
That’s because if bank funds don’t flow into industry, business, and production, employment won’t be created. Production won’t increase. New entrepreneurs won’t emerge. Demand won’t be generated in the economy. As a result, demand for new loans at banks won’t materialize either.
The current situation shows deposits rising on one hand while investment falls on the other. As a result, bank funds remain locked in government debt or safe investments. This carries a risk of hindering private-sector expansion.
Where’s the solution?
To put the more than 4 trillion taka in surplus funds accumulated in banks toward productive economic use, the investment environment must first be restored. Uninterrupted gas and electricity supply, stable tax policy, improved infrastructure, a secure business environment, and lower business costs all require urgent progress.
At the same time, confidence must be restored in the banking sector. Political or influential interference in loan disbursement must end, and genuine entrepreneurs must have greater access to credit. Easy-term loan arrangements need to be established for small and medium entrepreneurs.
Most importantly, having money in banks alone does not turn the economy around. That money becomes effective for the economy only when it is used to purchase factory machinery, start new businesses, increase production, and create jobs.
The new record in idle bank funds is, therefore, not merely a banking-sector problem — it is a major warning sign for the country’s investment climate. Unless entrepreneur confidence is restored and investment increased, this vast sum accumulated in banks risks sitting idle for even longer, rather than accelerating the economy.
বাংলায় মূল প্রতিবেদন পড়ুন · Read the original Bengali report