Investment remains stagnant despite liquidity surplus in banks

“Disbursement of loans to ordinary clients has declined except for a few large groups of industries,” said the chief executive officer of a private bank.

On other hand, the refinancing funds of Bangladesh Bank are also entering into the banks, resulting in an increase in liquidity in the country’s banking sector.The amount of surplus liquidity in the banking sector has now reached a record Tk 1.75 trillion.

The commercial banks have to maintain a fund of Tk 1.98 trillion with the central bank of as a guarantee against the deposits. But till October this year, the fund deposited with Bangladesh Bank is around Tk 3.6 trillion. It means there is a surplus fund of Tk 1.6 trillion.

Of this, six state-owned banks have a surplus fund of Tk 530 billion, private commercial banks have Tk 704.57 billion, Islamic Shariah-based banks also have additional funds of Tk 150 billion while foreign banks have Tk 210 billion.

However, a significant portion of this fund is invested in government treasury bills and bonds. But these funds are considered as investable capital in the banking term as banks can lend fund from central bank keeping that money as mortgaged.

Banking sector insiders said banks are more cautious in disbursing loans and the genuine entrepreneurs are reluctant in taking new loans in the current situation.

“But there is a class of businessmen who want to borrow from banks now. However, their track records are not good at all. This class of businessmen are mainly roaming around banks,” the managing director of a bank told The Daily Sun on condition of anonymity.According to the MD, the impact of Covid-19 is reducing global demand and consumption.

“In this situation, those who are real and good businessmen do not want to take loans to start a new business. The genuine businessmen are busy holding on to the ongoing business only,” he added.

Dr Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, said banks are not disbursing loans now because the sector is already plagued with default loans.

“The government allowed the businessmen to delay the loan payment till December, but there is no guarantee that they will be able to repay the loan even after December. If no initiative is taken from the central bank, how many instalments will the traders pay together? Due to non-payment of loans for a long time, the banking sector will suddenly be hit by defaulted loans,” Dr Mansur said.

Analysts said that despite various obstacles if banks do not increase investment among large industries, CMSME and ordinary customers, the economic momentum will get slower.

To keep the economic wheel in motion, the genuine entrepreneurs who cannot invest due to lack of money have to be selected and given loans, otherwise, the economy as a whole will suffer, experts said.