Excess liquidity in Bangladesh’s banking sector has crossed Tk 4 trillion for the first time as private-sector demand for loans continues to weaken.

According to Bangladesh Bank data, excess liquidity stood at Tk 4.08 trillion at the end of June, up from around Tk 3.37 trillion a month earlier. The figure was Tk 2.84 trillion at the end of June 2025, indicating an increase of more than Tk 1.2 trillion in a year.

At the same time, private-sector credit growth declined to 4.47% in June from 4.98% in May. The slowdown indicates that weak demand for investment and new loans, rather than a shortage of funds, is becoming a major concern for the economy.

Experts attribute the weak investment demand to uncertainty over gas and electricity supplies, high interest rates, rising business costs, production disruptions and pressure from non-performing loans. Many entrepreneurs are reportedly reluctant to take new loans for factory expansion or fresh investment and are instead borrowing mainly for working capital and maintaining existing businesses.

BIBM Director General Azazul Islam said deposits are growing faster than loans, leaving banks with sufficient liquidity. While private-sector credit growth remains below 5%, deposit growth is above 10%, reducing banks’ dependence on short-term borrowing from the central bank and interbank market.

Banks have also become more cautious about lending following the rise in non-performing loans. They are now giving greater importance to borrowers’ repayment capacity, cash flow, collateral and business prospects. Some banks are consequently investing surplus funds in relatively safer government securities instead of extending loans to riskier private-sector businesses.

Bangladesh Bank’s foreign currency purchases have also contributed to the increase in liquidity. The central bank bought a net $6.43 billion from the foreign exchange market during fiscal year 2025-26, injecting additional taka into the banking system. However, weak credit demand has prevented much of the additional liquidity from reaching productive sectors.

The central bank has taken several measures to revive private investment, including a Tk 600 billion low-interest incentive package and reductions in policy interest rates. On July 30, it cut the repo rate from 10% to 9.5% and the standing lending facility rate from 11.5% to 11%.

Economists say lowering interest rates and providing incentives alone will not be sufficient to revive investment. Restoring business confidence, ensuring reliable energy supplies, reducing uncertainty and controlling non-performing loans will be essential to channel excess banking liquidity into productive investment.

The growing gap between abundant bank liquidity and weak private-sector credit demand could pose a challenge to Bangladesh’s efforts to increase investment, employment and economic growth.