Dbarta24 Business Desk – Despite having ample liquidity, commercial banks in Bangladesh are struggling to disburse loans into the business and trade sectors, leading to a massive buildup of idle funds across the financial system.
Data released by Bangladesh Bank for July 2026 reveals that excess liquidity in the banking sector surged to Tk 4,20,960 crore, reflecting a 3.16% month-on-month increase from June’s Tk 4,08,080 crore. Year-on-year, total deposits grew by 11.36% to Tk 20,93,704 crore, dominated heavily by fixed deposits which reached nearly Tk 18.80 lakh crore. However, private sector credit growth remains stuck near historical lows, edging up only marginally from 4.47% in June to 4.62% in July.
Instead of channeling capital into industrial expansion, cautious lenders are increasingly parking their surplus funds in safe-haven government treasury bills and bonds to mitigate rising default risks.
Rising Non-Performing Loans Drive Risk-Averse Banking
While financial institutions continue to generate profits from foreign exchange operations and government securities, their core revenue driver—lending—has hit a severe roadblock. Lenders cite lingering business uncertainty, volatile energy and import costs, exchange rate fluctuations, and high Non-Performing Loan (NPL) risks as primary reasons for their defensive posture.
“Only maintaining stability through interest rates or holding government securities is not a sustainable path for banks,” noted Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank and former Chairman of the Association of Bankers, Bangladesh. “While banks have profited from foreign currency and government securities in recent years, core lending has taken a devastating hit, causing Net Interest Income to drop alarmingly.
High default risks have made banks extremely reluctant to extend new credit, as bad loans directly stress capital, profits, and overall liquidity management.”
Central Bank Interventions Fail to Igniting Private Investment
In a bid to revive private sector borrowing, Bangladesh Bank recently reduced its policy rate by 0.50 percentage points to 9.50% and initiated the implementation of a Tk 60,000 crore stimulus package. Nevertheless, market demand for credit remains subdued as entrepreneurs weigh broader macroeconomic factors before committing to fresh capital investments.
Addressing the situation, Dr. Zahid Hussain, former Lead Economist at the World Bank, pointed out that the central bank’s focus must shift from liquidity management to productive deployment. “The narrative has shifted from liquidity shortages to a failure in productive utilization,” Dr. Hussain explained. “Banks have cash, but deposits are rising while loan demand remains weak. Banks are stuck trying to safeguard depositors’ money while struggling to find solvent, low-risk borrowers.”
Despite the current stalemate, central bank officials remain optimistic that policy easing will eventually yield results. Arif Hossain Khan, Executive Director and Spokesperson of Bangladesh Bank, stated that the central bank’s recent policy initiatives are expected to stimulate private sector credit demand in the coming months.