Surplus liquidity at banks past Tk 4 lakh crore

Surplus liquidity in the banking sector surged 45 percent over the past year to cross Tk 4 lakh crore, but the vast majority of the funds are parked in government treasury bills and bonds rather than trickling into private sector credit, according to a central bank report.

The findings were presented at the fourth meeting of the parliamentary standing committee on finance ministry chaired by Brahmanbaria-4 MP Mushfiqur Rahman.

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The report by Bangladesh Bank highlighted a stark dichotomy in the financial system: while strong conventional banks hold the lion’s share of excess liquidity locked in government securities, several lenders, particularly Shariah-based Islamic banks, continue to face severe liquidity stress.

By the end of August, total liquid assets in the banking system, comprising cash and government securities, reached Tk 4.5 lakh crore, up from Tk 3.1 lakh crore a year earlier.

The country faces no actual “liquidity shortage”, the BB said. Instead, higher remittance inflows, positive shifts in foreign exchange reserves, and a gradual revival of depositor confidence have driven up excess liquidity.

However, cash crunches persist among Shariah-compliant lenders and other weak financial institutions.

To keep fragile banks afloat, the central bank has disbursed Tk 84,945.71 crore in emergency liquidity support (demand loans) as the lender of last resort.

Among individual recipients, Islami Bank received the highest assistance at Tk 17,000 crore, followed by First Security Islami Bank (Tk 15,810.32 crore), Social Islami Bank (Tk 10,843 crore), EXIM Bank (Tk 10,568 crore), National Bank (Tk 10,508 crore), Union Bank (Tk 5,421 crore), Premier Bank (Tk 4,900 crore), AB Bank (Tk 4,270 crore), and Global Islami Bank (Tk 3,003 crore).

Three other banks received between Tk 200 crore and more than Tk 600 crore each.

Meanwhile, following a cut in the policy rate from 10 percent to 9.50 percent, the interbank call money rate has trended lower.

On September 27, the call money rate stood at 8.72 percent, down from 9.94 percent on the same day last year.

Despite substantial surplus liquidity, capital shortfalls and historic defaulted loans are preventing banks from expanding fresh credit to the broader economy.

As of March, 15 out of 63 banks were operating with negative capital. The banking sector’s overall Capital to Risk-Weighted Assets Ratio (CRAR) plummeted to negative 3.17 percent.

Shariah-based banks fared worst, with their capital adequacy ratio sliding to an alarming negative 44.77 percent.

Eroded capital structures are severely undermining banks’ ability to absorb losses, safeguard depositors’ interests, and extend new credit, the report said.

The surge in bad loans remains a key concern.

By the end of June, defaulted loans rose to Tk 5,81,247 crore, accounting for 31.41 percent of total disbursed loans. Total classified loans climbed to Tk 6,06,555 crore, or 32.78 percent of the total credit portfolio.

On the earnings front, despite generating an operating profit of Tk 789 crore in the first quarter of the year, the banking sector posted a net loss of Tk 8,417 crore after adjusting for high provisioning and potential loan losses.

Currently, 22 banks hold cumulative losses totalling Tk 2,53,938 crore.

To restore equilibrium and rein in defaulted assets, the BB has outlined short-, medium- and long-term reform plans.

Legal overhaul is also underway through amendments to the Bank Company Act 2026, the Money Loan Court Act 2026, and the upcoming Insolvency and Bankruptcy Act 2026.

The regulator is also evaluating legal provisions to publicly disclose lists of loan defaulters and wilful default borrowers, the report added.

According to a press statement from the parliamentary committee, lawmakers discussed the ministry’s presentation on the current financial sector outlook, stressing the need for enhanced transparency, accountability, and macro-financial stability.

The committee directed the ministry to present comprehensive data at the next meeting.

Finance Minister Amir Khasru Mahmud Chowdhury, Chief Whip Md Nurul Islam Moni, along with committee members Md Jalal Uddin, Moinul Islam Khan, Md Sofiqur Rahman (Kiron), Md Saiful Alam, Syed Jaynul Abedin, and Md Abul Hasnat were present at the meeting.