Published : 21 Aug 2026, 03:30 PM
Updated : 08 Sep 2026, 09:34 AM
The Liquidity Puzzle
Borrowing plunges: Banks pulled Tk 2.78 trillion from call money, inter-bank and repo sources in July, down nearly 30 percent from June's Tk 3.97 trillion
Surplus swells: Liquidity jumped roughly Tk 710 billion in a month, with SDF deposits hitting a record Tk 1.5 trillion in June
Credit demand stalls: Private sector credit growth slid to 4.47 percent by June-end, despite a policy rate cut to 9.50 percent
Commercial banks are borrowing less from call money, inter-bank repo and Bangladesh Bank's repo facility, as demand for credit from the private sector continues to slide.
Banks typically turn to these three sources to manage short-term liquidity.
A bank facing a temporary cash shortfall can borrow from another bank through call money, or raise funds against collateral through inter-bank repo or the central bank's repo window.
According to Bangladesh Bank data, commercial banks borrowed a combined Tk 2.78 trillion from these three sources in July, down sharply from around Tk 3.97 trillion in June.
Borrowing stood at around Tk 2.93 trillion in December 2025 and around Tk 2.66 trillion in June last year.
Bankers see weak private sector credit flow as a key driver behind the trend.
Private sector credit growth fell to 4.47 percent by the end of June, down from 4.98 percent in May.
Bankers and economists point to weak investment, sluggish industrial output, an energy crunch, business uncertainty and rising defaulted loans as the reasons behind the falling demand for fresh credit.
As a result, a large share of the funds sitting with banks is going unused as surplus, rather than flowing into productive sectors.
Surplus Liquidity Climbs
Surplus liquidity in the banking sector is rising even as credit demand falls.
Bangladesh Bank data shows surplus liquidity stood at around Tk 3.37 trillion at the end of May, climbing to around Tk 4.08 trillion by the end of June, a jump of roughly Tk 710 billion in a single month.
Banks are parking a portion of this surplus cash in Bangladesh Bank's Standing Deposit Facility (SDF), through which they earn a fixed interest rate on deposits held with the central bank.
Commercial banks parked around Tk 1.5 trillion in the SDF in June, a record for the facility, according to Bangladesh Bank data.
Banks had deposited around Tk 545 billion in the SDF in February this year, Tk 578 billion in March and Tk 444 billion in April.
The SDF currently carries an interest rate of 7.50 percent, while the weighted average call money rate stood at 9.37 percent on Aug 19.
With banks sitting on surplus funds, the need for short-term borrowing is easing.
Banks facing liquidity shortfalls, however, continue to rely on call money, inter-bank borrowing and the central bank's repo facility.
Buying Dollars, Adding Taka
Bangladesh Bank's dollar purchases in the foreign exchange market have also fuelled the rise in banking sector liquidity.
According to the central bank's latest monetary policy review, it made net purchases of $6.43 billion from the foreign exchange market in the 2025-26 fiscal year.
Such dollar purchases inject additional taka into the banking system.
Bangladesh Bank data on foreign currency purchases shows the central bank remained active in the market through the first week of June.
Separately, Bangladesh Bank cut its policy rate, or repo rate, from 10 percent to 9.50 percent on Jul 30, with the new rate taking effect from Aug 2.
The Standing Lending Facility rate was also cut from 11.50 percent to 11 percent, while the SDF rate was left unchanged at 7.50 percent.
Despite the rate cut, there is still no clear sign of rising private sector credit demand.
Fewer Investment Opportunities
Syed Mahbubur Rahman, managing director of private lender Mutual Trust Bank (MTB), told bdnews24.com that prolonged economic uncertainty had steadily narrowed investment opportunities, driving up surplus liquidity.
"Deposit management could become a major challenge for many banks," he said.
"Industrial enterprises are facing operational difficulties due to factors such as the energy crisis, and the recent crisis in Gulf countries has made things worse.
“As a result, banks' investment opportunities have also shrunk in recent months, since bank credit still flows mostly to institutional borrowers. That's why banks' appetite for lending keeps falling," he said.
Mosleh Uddin Ahmed, managing director of Shahjalal Islami Bank, said the growing stockpile of idle liquidity, with demand for loans falling, had become a headache for many banks.
Ezazul Islam, director general of the Bangladesh Institute of Bank Management (BIBM), said commercial banks were scaling back borrowing as deposit growth outpaced credit growth.
"Private sector credit growth in the banking sector has fallen below 5 percent, while deposit growth is running above 10 percent. So banks have adequate liquidity to run their regular operations," he added.
The rising surplus liquidity trend is easing banks' need for short-term borrowing on one hand, while on the other, it reflects weak investment and credit demand across the economy.
