Banks divert investment to risk-free government securities
The investment of banks in the government securities increased by 43% year-on-year in January this year as private sector entrepreneurs were reluctant to take loan due to sluggish business climate.
It increased to Tk141,942 crore in January 2014 over the last 12-month period from Tk99,000 crore in January last year, according to latest Bangladesh Bank statistics.
During the period, private sector credit growth increased by 13% to Tk783,709 crore, which is much less than the monetary policy target.
The country’s commercial banks are awash with excess liquidity due to less than expected investment amid lower credit demand with almost all kinds of business expansion remained suspended amid political uncertainty ahead of the general election held on January 5.
As a result, banks increased their investment in the government securities instead of keeping the money idle, said a Bangladesh Bank senior executive.
“Bangladesh Bank is selling the government securities keeping in mind whether the government would face interest burden,” Deputy Governor SK Sur Chowdhury told the Dhaka Tribune yesterday.
Excess money after maintaining statutory liquidity ratio (SLR) in the banking system as of January 9 this year stood at Tk89,337 crore, including Tk79,000 crore or 88.5% remained invested in the government securities.
“The banks are not bound to invest in government securities, but they invested here for risk-free return,” said a senior executive of a private bank. “The amount of investment increased when the banks considered it risky to invest in private sector due to political turmoil.”
The banks get around 10% interests on investment in government securities against an average of above 15% they could get through lending otherwise.
“Lending to private sector has the risk of becoming classified, but there is no risk of investment in government securities,” Bangladesh Bank Executive Director Mahfuzur Rahman told the Dhaka Tribune.
Banks can lend up to 81% of their liquidity. It was about 56% in case of the state-owned banks till December 13 last while about 78% for private commercial banks.
The investment in government securities in the first quarter of last year increased by 7% to Tk100,000 crore when private sector credit posted negative growth by 0.15% to Tk425,000 crore.
The quarterly credit growth in the government securities increased by 6.45% to Tk118,000 crore in June last year, followed by 2% to Tk130,000 crore in September and 7.1% to Tk141,000 in December while private sector credit growth increased by 2.7% to Tk446,000 crore, 1% to Tk442,000 crore and 2.6% to Tk 463,000 crore respectively.
The excess liquidity increased by Tk29,000 crore or 48% last year to stand at Tk89,000 crore in January 2014 from Tk60,000 crore in the same month last year.