The trend of new borrowing has receded drastically due to sudden worsen of corona situation. Banks are facing suffering due to stagnation of money for want of lending.

SPECIAL CORRESPONDENT:

Commercial banks in the country have now turned into mountain of idle money as those are not getting clients for new lending during the lockdown imposed by the government due to the corona pandemic. Businessmen are not showing interest for new investment following the prevailed uncertainty.

Even, before the outbreak of coronavirus across the country last year, the pace of private sector lending was extremely slow. Due to the global epidemic, trade and commerce were virtually shut down for months.

During the corona pandemic, entrepreneurs are going away from new investments in which the trend of borrowing from banks is becoming more downward.

Despite the disbursement of incentive funds, private sector credit growth has come down to almost half of the desired level.

The government had borrowed only Tk 595 crore from the banking sector in six months as per announcement. In this circumstance, banks are not getting clients to take loans due to lack of new investment. Consequently, the commercial banks are turning into mountain of idle money day by day. The highest idle liquidity pile has been created in the banking sector of the country’s history.

According to the Bangladesh Bank, at the end of last December, the amount of investable money was Tk 2,04,738 crore. Though, the central bank has not yet been published its calculation for the first quarter of the year from January to March, the amount of excess liquidity of the banks has increased during this period; BB officials said adding that, most of the banks had been suffering from severe liquidity crisis even a year ago. Private Banks struggled to maintain cash deposit rates (CRRs) and easily convertible assets (SLRs), and got down in competition with other banks to raise deposits at higher interest rates to provide liquidity. Now the scenario has been changed completely. Most of the banks have reduced interest rates on deposits to below 4 percent. At the same time, Bangladesh Bank has relaxed the policy of ‘Internal Credit Risk Rating (ICRR)’ to increase the disbursement of loans. It is also encouraging to venture capital and alternative investments.

Merchants said, the trend of new borrowing has receded drastically due to sudden worsen of corona situation. Banks are facing suffering due to stagnation of money for want of lending.

Experts said, entrepreneurs don’t dare for new investment during the unbalanced economic situation. If the economic and development pace were normal, the trend of investment would increase.

In this situation, there are needed structural reforms for CSME sector loans besides increasing the investment of banks in the private sector. AB Mirza Azizul Islam, former financial adviser of the then caretaker government said, the pace of private debt was slow even before the corona outbreak. It has become more downward since the beginning of corona pandemic, as the entrepreneurs are not going for new investments. Consequently, imports of capital equipments and industrial raw materials have been declined. This means that the production capacity is not being fully utilized. For this reason, the demand for loans in the private sector has become reduced. In this situation, the banks have increased excess liquidity and idle money. This is not a good sign at all for the economy.

According to sources, the corona situation has taken serious turn again from the last month. Therefore, none wants to take high risk for new investment during the uncertainty. This has reduced the demand for loans in the private sector. In this situation, idle money has been lying in many banks.

Masroor Arefin, General Secretary of the Association of Bankers Bangladesh (ABB) and top executive and Managing Director of The City Bank said, “Everything has slowed down due to clutch of corona. We are not getting new investors. Excess liquidity is now hurting the banking sector. New investments are not being made in comparison to the way deposits are coming.”

In addition, a number of refinancing funds have been set up by the central bank and the size of existing funds has been increased so that the banks do not fall into crisis in disbursing loans for various incentive packages announced by the government to cover the loss of corona. Under this, the banks get about Tk 51,000 crore from the central bank. Besides, CRR has made 4 percent reducing 1.5 percent in two phases. Consequently, the banks have acquired the capacity to lend another Tk 19,000 crore. Besides, the repo rate has been reduced to 4.75 percent in three phases to increase liquidity in the bank. One year special repo has already been introduced. After 17 years, the bank rate has made 4 percent reducing 1 percent. On the other hand, remittances sent by expatriates during corona pandemic have continued to recover. As a result, Bangladesh Bank has been buying a lot of dollars from the market for several months to keep the foreign exchange rate stable. Cash Taka is also going to the bank against buying of dollars.