Bank liquidity crisis looms as imports are on rise

02 November 2021

Banks will come under a liquidity crisis within three to six months due to an escalation of import financing and a rising demand for loans from businesses as the economy returns to normalcy. A report published in a national daily on Monday said that some banks are already feeling the pinch of liquidity shortage. This trend would spread throughout the entire banking system within the next couple of months. As imports are expected to rise further, this pickup in trade will also push the private sector credit growth up. Top bankers and experts have warned that liquidity crunch in the banks hinders the growth of banking transactions and business activities, which further aggravates the economy.
Bangladesh Bank data shows that surplus funds in the banking sector stood at Tk 219,600 crore as of September, 5 per cent down from a month ago. In June, the excess liquidity rose to a record high of Tk 231,711 crore. The excess liquidity had stayed at high levels in June because of the economic slowdown caused by the pandemic. But the situation is completely different now owing mainly to the excessive growth of imports. So, it is necessary to improve and strengthen the financial compliance issues so that the banks can face and overcome the liquidity crunch in the sector.
In this context, Bangladesh Bank should play its due role to protect public money and bring commercial banks under strict regulation to maintain a healthy ADR (advance deposit ratio), on the one hand, and ensure smooth money supply to businesses and industries, on the other. Money is the life blood of the national economy and as such, the liquidity crisis in banks should be treated as a wake up call. Due to corruption, inefficiency and lack of good governance, the banking sector could not be improved to the desired level as yet.

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