Banks drown in record Tk 4.08t surplus as investment demand dries up

Bangladesh’s banking sector is awash with a record Tk4.08 lakh crore in excess liquidity as entrepreneurs hold back on fresh investment amid persistent gas and power shortages, high borrowing costs, rising business expenses and prolonged economic uncertainty.

The unprecedented pile-up of idle funds is exposing a widening disconnect between money available in banks and demand for productive investment.

Excess liquidity surged to more than Tk4.08 lakh crore by the end of June 2026, up sharply from Tk2.83 lakh crore a year earlier and Tk1.93 lakh crore two years ago.

The dramatic rise has come as deposits continue to grow while private-sector borrowing remains subdued. Bank deposit growth stood at 10.74 per cent in June, whereas private-sector credit growth slowed to just 4.47 per cent, according to Bangladesh Bank data.

The widening gap is leaving banks with increasingly large pools of money that they cannot deploy profitably through conventional business lending.

At the heart of the problem is a deteriorating investment climate.

Entrepreneurs say unreliable supplies of gas and electricity remain one of the biggest barriers to new investment. For industrialists, securing a bank loan is only the beginning: if factories cannot operate consistently, generating enough cash flow to repay principal and interest becomes increasingly difficult.

High interest rates, escalating production costs, political and economic uncertainty, law-and-order concerns and frequent changes in taxation and regulatory policies are further discouraging businesses from taking long-term investment risks.

As a result, the limited credit being taken up is largely being used for working capital, raw-material imports and day-to-day operations, rather than establishing new factories or expanding existing production capacity.

The situation is being compounded by a more cautious banking sector.

After years of aggressive and often poorly scrutinised lending contributed to a massive accumulation of non-performing loans (NPLs), banks are now tightening their credit filters. Viability of projects, collateral quality, cash flows and repayment capacity are being examined far more rigorously before fresh loans are approved.

The result is a vicious cycle: businesses are reluctant to borrow, while banks are increasingly reluctant to lend.
The concentration of surplus liquidity is another emerging concern.

According to former Bank Asia President and CEO Md Arfan Ali, much of the excess liquidity is concentrated in a relatively small number of financially stronger banks.

These banks, he said, are increasingly choosing to park surplus funds in comparatively safer government securities, including Treasury bills and bonds, rather than exposing their balance sheets to higher-risk private-sector lending.

The latest liquidity figures therefore point to a deeper problem than a shortage of bankable funds.

Bangladesh has money sitting in its banks, but not enough confidence sitting in its businesses.