Banks' excess liquidity hit the all-time high of around Tk 1.40 trillion in June, fuelled by the government's higher borrowing from the country's banking system to partly meet its budget deficit.
Lower private sector credit growth also pushed up excess liquidity in the banking system, according to bankers.
Private sector credit growth decelerated continuously in the recent months following lower credit demand due to supply chain disruption amid the ongoing coronavirus pandemic, they explained.
Surplus liquidity surged by more than 55 per cent to Tk 1,395.58 billion as on June 30, from Tk 899.09 billion three months before, according to the central bank's latest statistics.
The government's borrowing from the banking system through issuing treasury bills (T-bills) and bonds more than doubled in the last fiscal year (FY), 2019-20, to partly finance its budget deficit.
Its borrowing from the banking system rose by nearly 109 per cent to Tk 722.46 billion as on June 30 last, from Tk 345.87 billion in the same period of the previous fiscal, according to the official figures.
The government securities, covering both T-bills and bonds, are considered as liquidity while calculating the excess liquidity in the banking system.
Actually, all liquidity available in the banking system that exceeds the needs of banks is called excess liquidity.
"Around 90 per cent of the excess liquidity has already been invested in the government-approved securities as a risk-free investment for banks," a senior official of the Bangladesh Bank (BB) told the FE while replying to a query.
He noted that the excess liquidity does not necessarily mean 'idle money' for the banks.
"Such liquidity may increase slightly in the coming months, as the government's higher bank borrowing may continue, mainly due to the ongoing Covid-19 pandemic," the central banker predicted.
He also said slashing of policy rates, including cash reserve requirement (CRR), by the BB has also helped boost excess liquidity in the banking system during the period under review.
The central bank has already provided a series of policy supports to help the banks implement the government-announced financial stimulus packages to speed up recovery of the pandemic-hit economy.
Talking to the FE, Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), said lower private sector credit growth has also pushed up excess liquidity in the banking system.
The private sector credit growth came down to 8.61 per cent in June 2020 on a year-on-year basis from 8.85 per cent a month ago, the BB's latest data showed.
This growth was 6.19 percentage points lower than the BB's target of 14.80 per cent for FY 20.
Mr. Rahman, also managing director (MD) and chief executive officer (CEO) of Mutual Trust Bank Limited, predicted that the private sector credit growth might increase in near future following the banks' implementation of the stimulus packages to help revamp economic activities.
Echoing him, M A Halim Chowdhury, MD and CEO of Pubali Bank Limited, said loan disbursements have already started, so the private sector credit growth may pick up from September.
The senior banker also predicted that the amount of excess liquidity may fall in the coming months, as credit to the private sector may increase gradually.
Mustafa K Mujeri, former director general of the Bangladesh Institute of Development Studies (BIDS), said the possibility of inflationary pressure on the economy for such liquidity is lower, as most funds have already been invested in the government securities.
Dr. Mujeri, a former chief economist of the central bank, advised the government to take effective measures to encourage businesspeople to invest more, particularly in the productive sectors, for creating more employment opportunities across the country.
