B Mirror Report:  Excess liquidity in Bangladesh’s banking sector has climbed to a record Tk 327,877 crore, reflecting weak private-sector credit demand, rising loan defaults, and persistent economic uncertainty that have discouraged banks from extending new loans.

According to the latest data from Bangladesh Bank, excess liquidity stood at Tk 215,002 crore at the end of December 2024. It rose to Tk 292,745 crore by June 2025 and further increased to Tk 327,877 crore in May 2026.

The figures indicate that idle funds in the banking system have expanded by nearly Tk 113,000 crore over the past one and a half years. During the same period, the total liquid assets of scheduled banks surpassed Tk 700,000 crore. More than Tk 500,000 crore, or about 72 percent of these assets, is invested in government-approved securities, primarily Treasury bills and Treasury bonds.

Bankers say investing in government securities has become a safer and more profitable option than lending to businesses, as it offers guaranteed returns without the risk of loan defaults. The trend has contributed to a sharp slowdown in private-sector credit growth, which fell to a historic low of 4.72 percent at the end of March 2026, down from 7.56 percent a year earlier.

Economists warn that reduced bank lending is making it difficult for businesses and industries to secure working capital, affecting production, employment, and new investment. They argue that the coexistence of massive excess liquidity in banks and a shortage of credit in the real economy reflects structural weaknesses in the banking sector rather than financial strength.

Meanwhile, government borrowing from the banking system reached Tk 137,000 crore in the 2025-26 fiscal year, exceeding the annual target by around Tk 33,000 crore.

The rapid increase in non-performing loans (NPLs) remains a major reason behind banks’ reluctance to lend. Bangladesh Bank data show that defaulted loans jumped from Tk 345,000 crore at the end of December 2024 to Tk 588,000 crore by the end of March 2026. More than 32 percent of all outstanding loans are now classified as defaulted, one of the highest ratios in South Asia.

As a result, nearly 20 banks have effectively halted new lending, while others have adopted stricter screening procedures before approving fresh loans.

In its Monetary Policy Statement for July-December 2026, Bangladesh Bank said excess liquidity is unevenly distributed across the banking sector. While several well-managed banks hold substantial surplus funds, others continue to face acute liquidity shortages. The central bank also attributed the growing excess liquidity to weak private-sector credit demand, strong deposit growth, sluggish investment activity, and ongoing economic uncertainty, which have encouraged banks to increase investments in Treasury bills and bonds instead of extending loans.