Bangladesh’s banking sector recorded a new high in excess liquidity, surpassing Tk 4 trillion for the first time in June, amid weak investment demand, rising non-performing loans and cautious lending by banks.

According to Bangladesh Bank data, excess liquidity stood at Tk 4.08 trillion at the end of June, up from Tk 3.37 trillion in May. This represents a monthly increase of Tk 710 billion.

The figure was Tk 2.84 trillion in June 2025 and Tk 1.94 trillion in June 2024. In June 2023, excess liquidity stood at Tk 1.66 trillion.

Bankers attributed the sharp rise to weak business and investment activity caused by gas and power shortages, infrastructure constraints and an uncertain business environment. At the same time, rising default loans have made banks more cautious about lending.

Private-sector credit growth has consequently slowed to 4.47 percent.

Meanwhile, some cash held by the public is gradually returning to banks. However, a large portion of deposits is flowing into a few financially stronger banks. These banks are increasingly investing in relatively risk-free government treasury bills and bonds instead of extending new loans.

Bankers clarified that the Tk 4.08 trillion in excess liquidity does not represent cash sitting entirely in banks. A significant portion is invested in various bills and bonds. Banks are currently required to maintain a 13 percent statutory liquidity ratio and a 4 percent cash reserve ratio against their demand and time liabilities. Funds held beyond these mandatory requirements are considered excess liquidity, and investments in bills and bonds can be converted into cash when necessary.

Bankers warned that unless investment demand improves, the situation could negatively affect industrial production. Resolving gas and electricity supply problems and infrastructure constraints will be crucial to encouraging businesses to borrow and invest again.

To boost investment and credit flows, Bangladesh Bank announced a Tk 600 billion low-interest incentive package in May. However, the response has so far fallen short of expectations. The central bank has also reduced its policy rate by 50 basis points to 9.5 percent and recently capped the spread between lending and deposit rates at 4 percent.

During the COVID-19 pandemic, weak credit demand also pushed excess liquidity higher. Under 12 stimulus packages, banks were instructed to distribute Tk 942.5 billion, but credit growth remained below expectations. Excess liquidity reached Tk 2.32 trillion at the end of 2021, setting a record at the time.

The latest figure has now surpassed that record, highlighting the continued weakness in credit demand and private investment in Bangladesh.