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Saturday, May 26, 2018

Liquidity crisis may deepen

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Deposits are not increasing in comparison to loans disbursed by the banks, ringing the bell of liquidity crisis further. A research report presented at a workshop at the Bangladesh Institute of Bank Management (BIBM) in the city yesterday has renewed the fear.

The research titled 'Treasury Operations of Banks' shaded light on the ratio of bank loans and deposits, and said that the rate of deposits in banks is less than the rate of the growth of loans.

In June, 2015, the growth of loans was 12.7 percent. On the other hand, the growth of deposits was 12.6 percent. In December 2017, the growth of loans stood at 18.1 percent while the growth of deposits decreased to 10.6 percent. If such situation continues, the liquidity crisis will deepen, said the report.

A four-member team led by Professor Md Nehal Ahmed of BIBM presented the report. Prof Nehal said, "The current advanced deposit (AD) ratio at private commercial banks is 84.7 decimal. In absence of proper treasury management, the ratio will be 83.5 percent within March, 2019.

BIBM Chair Professor Dr Barkat-e-Khuda said, "The entire banking sector will be affected if bankers do not adopt efficient treasury management."

Private banks in the country have been struggling with a severe liquidity crisis since the beginning of 2018. The central bank and the government have come up with a series of bailout policies to save private banks. However, fruitful result is yet to be harvested. Seriously hit by the crunch, country's businesses are witnessing an up of interest rates on bank loans, which went above 10%.

The policies include reducing the cash reserve requirement (CRR) by one percentage point to 5.5% from 6.5%, reducing the repo rate by 0.75% points to 6% from 6.75% aiming to make funds cheaper for all commercial banks, making deposits of 50% of the funds of state-owned agencies in private banks mandatory up from of 25%, and extending the deadline for adjusting the new advance-deposit ratio (ADR) to below 83.50% from the existing ceiling of 85% for conventional private banks and 89% from 90% for Islamic banks, till March 31, 2019.

 According to banking experts, private banks would receive an influx of Tk80,000 crore due to government policies with the purpose of stabilizing liquidity.

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