Excess liquidity in Bangladesh’s banking sector surged by 50 per cent in June 2025 compared with the same month of the past year, as many banks largely stopped lending due to a surge in defaulted loans, deep economic uncertainty, and limited investment opportunities.
Bangladesh Bank data shows that surplus liquidity rose to Tk 2,92,745 crore in June 2025, up from Tk 1,95,824 crore in June 2024.
Analysts said that the surge shows that banks are holding on to deposits rather than lending, fearing that funds will become trapped in non-performing loans.
Private sector credit growth fell sharply to 6.5 per cent in June 2025, the lowest in the country’s history and far below the central bank’s projection of 9.8 per cent.
According to BB’s monetary policy statement for July-December, 2025, several factors may have contributed to this decline, including reduced credit demand from non-bank deposit corporations and other financial sectors from deposit money banks amid ongoing uncertainties in the country, the implementation of a contractionary monetary policy that led to higher borrowing costs, and a tight liquidity situation within the banking sector.
Bankers said that the rising pile of idle funds signals a stagnant economy. With lending slowing, businesses face tighter access to credit, which could drag on growth and job creation.
Defaulted loans remain the single biggest driver of this caution.
Non-performing loans almost doubled within a year, rising to Tk 4.20 lakh crore in March 2025 from Tk 1.82 lakh crore in March 2024.
Defaults now account for 24.13 per cent of total loans, the worst ratio in South Asia.
Because of the mountain of bad debts and persistent irregularities, nearly 20 banks have virtually stopped lending, while many others are lending cautiously.
The crisis has already pushed Bangladesh Bank to force mergers among five Shariah-based banks after their financial collapse and is assessing 11 others for asset quality, raising the possibility of more mergers in the sector.
With limited lending opportunities, more than 70 per cent of excess liquidity is being parked in government treasury bills and bonds.
The pattern of excess liquidity has been steady, with excess liquidity rising from Tk 1,98,544 crore in October 2024 to Tk 2,07,623 crore in November, Tk 2,15,002 crore in December, and finally Tk 2,92,745 crore in June 2025.
The surge also follows earlier political and financial shocks.
During July and August 2024, amid nationwide unrest and the collapse of the Awami League government, excess liquidity plunged to Tk 1,75,337 crore.
That decline reflected large withdrawals by depositors who had lost confidence in banks.
Since then, deposits have recovered, with total deposits in the banking system reaching Tk 18.80 lakh crore in July 2025, compared with Tk 17.34 lakh crore a year earlier.
