The volume of excess liquidity in the banking system keeps mounting, surging by around Tk 780 billion in just a month in June.
Such a mammoth rise has put commercial banks in a quandary as investment avenues for them continue to squeeze amid the persisting economic slowdown.
As the private sector's demand for formal credit has been plummeting for months, commercial lenders' room for lending dropped remarkably amid higher non-performing loans (NPLs).
The private sector is considered the engine of growth of the $500 billion economy.
On the other hand, the banking sector is enjoying double-digit growth in deposit inflows in recent times after months of downturn, leading to the excess liquidity buildup, according to money market analysts.
But this buildup fails to lighten up the mood of bankers because the demand for private sector credit has fallen to a record low.
On the other hand, yields on government securities have not risen in pace with the abundance of liquidity in the banking system.
As a result, banks are parking record amounts of surplus funds in the central bank's low-yielding deposit window called Standing Deposit Facility (SDF).
The SDF rate is 7.50 per cent, much lower than that of call money.
According to the Bangladesh Bank (BB) data, excess liquidity in the banking industry rose to Tk 4.15 trillion by the end of June from May's count of Tk 3.37 trillion.
The volume was recorded at Tk 3.83 trillion and Tk 3.86 trillion in April and March, respectively.
Seeking anonymity, a central bank official says private entrepreneurs' demand for credit dropped to a record low while banks seem to be very cautious about approving loans amid higher NPLs.
"Commercial banks have enough liquidity but not enough investment opportunities. That is why they are now heavily relying on SDF despite lower returns."
The data shows affluent banks altogether kept around Tk 1.50 trillion in SDF in June, a record in the history of the banking sector.
Besides, the monthly volume of funds banks parked in SDF was recorded at Tk 545 billion, Tk 578 billion, Tk 444 billion, and Tk 444 billion in February, March, April, and May, respectively.
The central bank official says the rapidly growing surplus liquidity has also dampened the appetite of banks for borrowing through various Bangladesh Bank instruments.
To meet local currency obligations, scheduled banks normally borrow funds either from the central bank or from themselves, he says.
Three major instruments -- call money market, interbank repo, and central bank repo -- are used for such borrowing, he adds.
According to another set of Bangladesh Bank data, the total volume borrowed by banks from call money market, interbank repo, and central bank repo was estimated at Tk 2.66 trillion in June 2025.
Since then, the figure kept rising to reach Tk 2.93 trillion and Tk 3.97 trillion by the end of December 2025 and June this year, respectively.
Last month, commercial banks' borrowing from the three sources dropped significantly to Tk 2.78 trillion.
Managing Director and Chief Executive Officer of Mutual Trust Bank Syed Mahbubur Rahman says the growing buildup of excess liquidity is likely to become a pressing challenge for many banks as investment avenues continue to shrink amid prolonged economic sluggishness.
In terms of incremental deposit costs, the experienced banker says, banks are barely making any money, while blended deposit costs remain manageable for some institutions - at least for those considered better-managed.
He cautions that if the situation persists, commercial banks may ultimately have no alternative but to reduce both deposit and lending rates. "In such a scenario, deposit rates may even fall below the prevailing inflation rate, thereby rendering the real income of depositors negative."
Managing Director of Shahjalal Islami Bank Mosleh Uddin Ahmed says the rising stock of un-invested liquidity is turning into a headache for many banks in recent months due to the falling demand for loans.
The seasoned banker says there are people who mainly blame the higher lending costs for the declining demand for credit in the private sector.
"Yes, it is one of the factors, but not the prime one. The prime factor is the energy crisis that needs to be solved as quickly as possible," he notes. In June, the private sector credit growth plummeted to 4.47 per cent, while the deposit growth rose to 10.74 per cent, which was 7.73 per cent a year ago.
