Excess liquidity in Bangladesh’s banking sector reached a record Tk 4.08 lakh crore at the end of June 2026, as weak private-sector credit demand and cautious business investment left banks with a growing pool of idle funds.
According to Bangladesh Bank data, bank deposits grew 10.74 percent year-on-year in June, while private-sector credit growth slowed to just 4.47 percent.
The widening gap between deposit growth and credit demand has led to a sharp accumulation of surplus funds in the banking system. Excess liquidity stood at around Tk 1.93 lakh crore two years ago and rose to Tk 2.83 lakh crore in June 2025 before exceeding Tk 4 lakh crore this June.
Bankers and economists said the record liquidity does not indicate a shortage of funds in the banking system. Rather, it reflects weak demand for new loans, greater risk aversion among banks and reluctance among businesses to undertake fresh investment.
Entrepreneurs have remained cautious about borrowing to establish new factories or expand existing businesses amid continued uncertainty over the operating environment.
Unreliable gas and electricity supplies are among the major concerns for industrial investors. Businesspeople say disruptions to energy supplies can interrupt production and weaken cash flows, making it difficult for companies to service bank loans.
High borrowing costs, rising operating expenses, political and economic uncertainty, law-and-order concerns, and changes in tax and regulatory policies have also discouraged fresh investment.
As a result, much of the new lending is currently being used to finance working capital, imports of raw materials and routine business operations rather than new industries or major expansion projects.
Former Bank Asia President and CEO Md Arfan Ali said entrepreneurs remained reluctant to invest because the overall business environment had not improved sufficiently.
He said a significant portion of the surplus liquidity was concentrated in financially stronger banks, which increasingly prefer relatively risk-free government securities.
Arfan Ali said simply reducing interest rates would not be enough to revive private investment.
“Unless electricity, gas and infrastructure problems are adequately addressed, investment demand will not rebound,” he said.
Weak credit demand has also been compounded by banks’ more cautious lending practices following years of aggressive and, in some cases, poorly assessed lending that contributed to a rise in non-performing loans.
Banks are now scrutinising borrowers more closely, assessing project viability, collateral, cash flows and repayment capacity before approving loans.
The situation has created a growing divide within the banking sector. Weaker banks are struggling with limited lending capacity, while financially stronger banks with excess funds are increasingly investing in Treasury bills and government bonds.
The result is a banking system with abundant liquidity but relatively weak demand for private-sector credit.
The weakness in private-sector lending is significant because bank credit is a major source of financing for industrial expansion, job creation and broader economic activity.
Although high liquidity theoretically gives banks ample funds to finance investment, the current situation suggests that the main constraint is increasingly weak demand for productive credit and heightened risk aversion, rather than a shortage of lendable funds.
The record surplus liquidity therefore presents a challenge for policymakers. Unless investor confidence improves and structural constraints—including energy shortages, infrastructure weaknesses and regulatory uncertainty—are addressed, large amounts of bank funds may remain outside productive private-sector investment.
At the same time, banks’ growing preference for government securities over private-sector lending could reinforce the trend if businesses remain reluctant to borrow and banks continue to view private-sector lending as comparatively risky.
