S Alam Khan; Dbarta24 — Excess liquidity in Bangladesh’s banking sector has crossed the record threshold of Tk 4 lakh crore at the end of June 2026, driven by sluggish private sector investment, lingering infrastructure challenges, and conservative lending practices.
Data from Bangladesh Bank indicates that excess liquidity reached Tk 4,08,000 crore in June 2026, up significantly from Tk 3,37,000 crore in May.
The figure stood at Tk 3,27,000 crore in December 2025 and Tk 2,83,640 crore in June 2025.
Industry experts attribute this sharp liquidity accumulation to reduced appetite for private sector credit, which decelerated to a growth rate of just 4.47 percent.
Ongoing gas and electricity constraints, alongside broader macroeconomic headwinds, have deterred entrepreneurs from expanding operations or initiating new ventures.
Capital Flight to Quality and Government Securities
A flight to quality among depositors has shifted capital into a small cluster of financially sound institutions.
Following confidence shocks where several troubled banks struggled to honor withdrawals, public preference for holding cash at home has subsided, with funds returning predominantly to well-governed banks.
Rather than expanding commercial loan portfolios under heightened default risks, these solvent banks are heavily allocating excess capital into risk-free government treasury bills and bonds.
Under current central bank regulations, commercial banks are required to maintain a 13 percent Statutory Liquidity Ratio (SLR) and a 4 percent Cash Reserve Ratio (CRR) against their demand and time liabilities.
Any holdings beyond these statutory limits are categorized as excess liquidity. Because government bills and bonds can be liquidated on demand, they constitute the vast majority of this excess cushion.
Expert Insights and Economic Impact
Former President and CEO of Bank Asia, Md. Arfan Ali, noted that structural bottlenecks continue to dampen credit demand.
“Entrepreneurs are showing little interest in taking loans as the business environment has not improved. Furthermore, most of the excess liquidity is concentrated in just a few banks. These institutions are prioritizing low-risk government bills and bonds over commercial loans. This trend will ultimately hamper industrial production.”— Md. Arfan Ali, Former President & CEO, Bank Asia
Ali added that investment demand is unlikely to rebound without immediate improvements to infrastructure, including reliable gas and electricity connections.
He projected that while lending interest rates may decline due to surplus funds, deposit rates are unlikely to drop significantly due to systemic pressures across weaker banks.
Policy Measures Face Muted Response
The liquidity buildup comes despite monetary easing measures by Bangladesh Bank. In May, the central bank announced a low-interest stimulus package of Tk 60,000 crore and slashed the policy rate by 50 basis points to 9.5 percent.
Additionally, Bangladesh Bank recently capped the maximum interest rate spread between lending and deposit rates at 4 percent.
Similar trends were observed during the COVID-19 pandemic, when a lack of loan demand pushed excess liquidity to a then-record Tk 2,31,711 crore at the end of 2021, despite Tk 94,250 crore distributed through subsidized stimulus packages.