The political instability over the past year has significantly reduced private sector investment in Bangladesh, leading to a year-on-year increase of Tk51,696 crore in banks’ excess liquid assets.
According to data from Bangladesh Bank, the total excess liquid assets in the banking sector—including securities—stood at Tk2.15 lakh crore at the end of December 2024, compared to Tk1.63 lakh crore a year earlier.
While excess liquid assets rose, excess cash holdings in banks declined by Tk2,291 crore, standing at Tk17,675 crore at the end of December 2024.
In August 2024, when the Awami League government fell, banks’ excess liquid assets amounted to Tk5,871 crore. However, this figure has increased significantly over the past six months.
Excess liquidity is calculated after maintaining the required Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). As per regulations, banks must maintain a 4 per cent CRR of total deposits in cash and a 13 per cent SLR in non-cash form with the Bangladesh Bank.
Banks Prioritising Government Securities Over Private Investment
Managing Director of a private bank stated that the rise in excess liquid assets is primarily due to a decline in private sector investment. He explained that excess liquidity represents the portion of banks’ total deposits that must be invested in securities to meet CRR and SLR requirements. Given the current economic situation, banks have increasingly directed their investments towards government securities rather than the private sector, contributing to the rise in excess liquid assets.
“In December 2024, private sector credit growth stood at 7.28 per cent, down from over 10 per cent a year ago. Although new money has been created in banks, most of it has been channelled into government securities rather than private sector investments, resulting in higher excess liquidity,” he added.
A Bangladesh Bank report further confirms that private sector credit growth fell to 7.28 per cent in December 2024, down by 38 basis points from November. This decline is attributed to weakened loan demand, a lack of new investment, and increased bank investment in government treasury bills and bonds.
According to central bank data, private sector credit growth hit a three-and-a-half-year low of 7.55 per cent in November 2024, declining by 66 basis points from October. This marks the lowest level since May 2021, continuing a downward trend since July, when credit growth stood at 10.13 per cent.
Decline in Capital Machinery Imports Reflects Investment Slump
The Managing Director of a state-owned bank, speaking anonymously, highlighted that imports of capital machinery have dropped significantly in the current fiscal year due to a lack of new investment. As a result, banks have shifted their funds into government securities.
Despite this, he noted that the dollar inflow into banks remains stable, with financial institutions actively importing consumer goods and industrial raw materials. However, he believes large-scale investment is unlikely before the elections due to prevailing law and order concerns. He anticipates a slight improvement in investment once the political situation stabilises.
According to Bangladesh Bank data, the value of letters of credit (LC) opened between July and December 2024 increased to $34.89 billion, compared to $33.49 billion in the same period the previous year. However, imports of capital machinery declined by 27.66 per cent over the same period, reflecting the broader slowdown in private sector investment.
