Most banks in tight spot
FROM PAGE B1
At least a dozen banks, including six shariah-based banks, are now facing a severe liquidity crisis. And they have failed to maintain the minimum cash with the central bank, the central bank said in a report.
In Bangladesh, shariah-compliant banks are particularly bearing the brunt of the liquidity crisis after loan irregularities made headlines as it prompted some borrowers to withdraw funds, industry insiders said.
Pubali Bank Managing Director Mohammad Ali blamed the slower deposit growth amid the persisting cost of living crisis and the widening public sector credit for the current liquidity crunch.
“Small and medium-scale deposits have been withdrawn in recent months as savers continue to struggle to meet their living expenses.”
Average inflation stood at 9.69 percent in July, slightly lower than the 11-year high of 9.94 percent in May.
Pubali Bank faces no liquidity shortage. Rather, its deposits increased by Tk 6,000 crore in the last six months, according to Ali.
The CEO points out that public sector borrowing increased to a large extent last year, worsening the liquidity situation at banks.
Jamuna Bank Managing Director Mirza Elias Uddin Ahmed says although a good number of banks are in a liquidity crisis, the liquidity situation of the overall banking sector is not that bad.
He, however, acknowledges that loan recovery is not in good shape at all because borrowers are not interested in paying back using the current economic slowdown as an excuse.
“This has tightened the liquidity situation.”
Dhaka Bank Managing Director Emranul Huq says the liquidity situation is continuing to improve except for some shariah-based banks since the private sector credit demand is yet to pick up and import payments have slowed in recent months.
He, however, warned that the liquidity situation would become tighter once credit demand rebounds.
Private sector credit growth stood at 10.57 percent in FY23, way down from 13.66 percent a year prior.
“Banks have slowed down lending due to the current economic uncertainty,” Huq added.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, says there is a tight liquidity situation because a major portion of loans are not coming back.
“For example, a growing number of importers are failing to settle loans against LCs despite their maturity. As a result, forced loans are being created.”
He said most banks are running their regular banking activities on the back of the central bank’s liquidity support.
“So, some banks that were not keen about taking fixed deposits in the past are accepting them.”
Rahman said although the interest rate on deposits is rising, banks are not being able to hike the interest rate on loans proportionately owing to the central bank’s new interest rate-setting mechanism.