Excess liquidity in Bangladesh’s banking sector declined in March as many depositors withdrew funds ahead of Eid-ul-Fitr to meet seasonal expenses.
According to data from the Bangladesh Bank, the surplus liquidity fell by 5.78 per cent to Tk 2,38,845 crore in March, down from Tk 2,53,387 crore in February.
The sharp drop was largely attributed to a surge in cash withdrawals during Ramadan and the run-up to Eid, which was celebrated nationwide on March 31.
With banks and financial institutions closed for nine consecutive days during the Eid holiday, many individuals preferred to hold cash for household and festival-related spending.
As a result, cash circulating outside the banking system jumped to Tk 2.96 lakh crore in March from Tk 2.71 lakh crore in February and Tk 2.74 lakh crore in January.
The excess liquidity was Tk 2,34,346 crore in January, Tk 2,15,002 crore in December, Tk 2,07,623 crore in November, and Tk 1,98,544 crore in October, indicating a steady build-up until the pre-Eid withdrawal cycle in March.
Earlier, excess liquidity had dropped significantly during July and August 2024 amid nationwide political unrest and the collapse of the Awami League-led government.
Liquidity pressures had intensified earlier in 2024, particularly during July and August amid nationwide political unrest.
From Tk 1,95,824 crore in June 2024, excess liquidity fell to Tk 1,78,713 crore in July and bottomed out at Tk 1,75,337 crore in August.
During the previous regime, rampant irregularities, growing defaulted loans, and erosion of trust led to significant fund withdrawals, exacerbating liquidity stress across several banks.
However, since the regime change and a renewed assurance from the Bangladesh Bank regarding deposit safety, confidence has been gradually restoring.
Total deposits in the banking sector rose to Tk 18.18 lakh crore in March 2025, compared to Tk 17.75 lakh crore in the same month a year earlier.
However, a large share—over 80 per cent—of the excess liquidity remains invested in government securities such as treasury bills and bonds, limiting the availability of liquid cash for immediate operations.
According to BB officials, the banking sector in Bangladesh has been facing some liquidity crunch since June 2021, which has continued throughout the first half of the fiscal year 2025.
They also said that this tight liquidity situation is due to several factors, including BB’s dollar sale, slow loan recovery, a high volume of non-performing loans, sluggish deposit growth attractive interest rates.
Additionally, the implementation of contractionary monetary policy to control inflation has further limited the liquidity in the banking sector, it said.