Rising import costs, demand for credit, rising international prices and the return to normal economic activities could soon lead to a liquidity crisis in the country’s banking sector.

Economists and bankers warn that if this continues, excess liquidity will decrease and from the second (October-December) or third (January-March) of the current fiscal year, it will create a liquidity shortage.

Some banks are already feeling the squeeze from the liquidity shortage, they said.

According to data from the Bangladesh Bank, excess funds in the banking sector stood at Tk 219,600 crore in September, down 5% from last month.

In June, excess liquidity reached a record high of Tk 231,711 crore.

Even then, in this situation, the central bank relaunched the Bangladesh Bill – an instrument used to mop up excess money market liquidity – in August.

Meanwhile, the yield on 10-year Treasury bonds stood at 6.8% in October from 5.63% in the same month a year ago.

The government borrows funds by issuing securities, and banks primarily provide the funds by participating in auctions.

But the situation is completely different now, say the bankers.

“Every sector of the economy has experienced negative growth due to the negative impact of Covid-19 last year. But we recovered from the situation at the beginning of this year, ”said CEO and CEO of Premier Bank Reazul Karim.

“Businesses are almost back to pre-pandemic levels with the reopening of the economy,” he added.

“In addition, the disbursement of term loans, with repayment terms of more than one year, is on the rise, a sign of new industrial investment. As a result, the stress on liquidity has already become visible in some banks because it has accelerated interbank borrowing, ”he added.

Although there is currently no major crisis in the banking sector, Karim expressed fears that the liquidity gap could worsen in the coming months.

“But it will spread throughout the banking system over the next couple of months,” he said.

Zahid Hussain, former chief economist at the World Bank’s Dhaka office, said the whole world was overcoming the pandemic and the business sector had started to return to growth.

The country’s exports rose again and the same happened with the growth of private sector debt, he added.

“Many companies were using their working capital to speed up production, which had a positive impact on credit growth. This will bring back the momentum to the money that has been idle for so long in the banks, ”the economist explained.

However, the continued deficit in remittances, keeping pace with rising international inflation, the decline in the value of the taka against the US dollar and rising imports, could lead to a liquidity crisis for banks. , he added.

According to central bank data, excessive import growth and private sector growth are on the rise.

Settlement of letters of credit (LC), also known as actual import payments, increased 47% year-on-year to $ 17.04 billion in the first quarter (July to September) of the current exercise.

Experts said imports are expected to increase further in the coming months.

At the same time, the resumption of imports boosted the growth of credit to the private sector.

Credit growth stood at 8.77% in September, down from 8.42% a month earlier. It was only 7.52% in the last fiscal year – the lowest in at least 28 years.

Meanwhile, banks have taken a cautious approach in granting loans.