Banking sector faces acute liquidity crisis

Faces Tk 13,000 cr liquidity shortfall now

Among the reasons behind the negative cash flow of the bank, non-recovery of outstanding loans and lower collection of deposits are significant

Golam Mostafa Jibon: Country’s banking sector has been facing acute crisis of liquidity due to manifold problems caused by ongoing corona pandemic across the country that hits the economy immensely.
Among the reasons behind the negative cash flow of the bank, non-recovery of outstanding loans and lower collection of deposits are significant, insider said.
Sources said, the whole world economy has been turned upside down due to cornavirus epidemic. This has immensely affected the country’s economical activities halting the normal pace of life. Many have become force to breach their savings to maintain household expenditures due to declining of income. Many people, who have saved more in the past, have reduced their savings to pull the grinder of costs. The tendency to keep money in the bank has also decreased abnormally compared to the earlier due to the reduction of interest rates.
On the other hand, banks are getting less-deposits due to corona situation. Besides, some customers have withdrawn money from the banks. Due to these reasons, the cash flow of the bank might have become negative. Overall the situation is not satisfactory. All in all, those all have created a kind of cash deficit in the banking sector. Such information has come up in the latest published financial reports of the banks enlisted in the capital market.
The banks released latest financial data of January-March this year. Among the listed 31 banks, some 25 have so far released their January-March quarterly accounts. Of them, some 15 banks are in liquidity or cash crunch. These banks have a liquidity crisis of around Tk 13,000 crore. Analysts said, many people have lost their jobs during the corona outbreak. Even, if some people have work, a large portion of their income has been reduced. Many, who have lost their jobs, have run out of savings to carry their households. People, who have lost income despite having a job, have naturally reduced their savings. It has reduced the bank’s deposit collection that affects negatively the liquidity of the bank.
According to a recent survey by the Citizens’ Platform for the Implementation of SDGs, Bangladesh, around 80 percent of households have reduced the measure of food having due to the epidemic. Savings have been reduced by 64 percent of households, while income has decreased by 15.80 percent of the families.
In addition, some concessions were given for the repayment of loans disbursed by banks during the epidemic. This has reduced the disbursement of loans. Besides, even before the epidemic, the financial condition of some banks was not good. That is why, after the onset of the epidemic, many have withdrawn money from banks and kept it for further needs.
Moreover, some have withdrawn money from banks due to low interest rates and invested in the stock market or other sectors to earn additional profit.
Analysts believe that, these have also played a vital role behind the negative impact of the bank’s liquidity.
Reliable sources said, there may be several reasons behind the negative cash flow of the bank including non-recovery of disbursed loans and low collection of deposits. Now that interest rates are low, many have reduced their dependant in banks. Some people are investing in the stock market by withdrawing money from banks.
Besides, many have withdrawn the money from the bank and spent it in various sectors due to declining of income amidst corona pandemic. Insiders said, the liquidity crisis in the banking sector is temporary and it will not create any problem. However, if the liquidity crisis lasts long, it will not bring good output.
However, this liquidity crisis will put pressure on the overall economy as well as on the banks. If the bank has a liquidity crisis, customers will be embarrassed to get their money back, they added.
The data review shows that during January-March this year, AB Bank, Bank Asia, BRAC Bank, Citibank, Dutch-Bangla Bank, Exim Bank, First Security Islami Bank, IFIC, Mutual Trust Bank, NRBC Bank, One Bank, Premier Bank , Shahjalal Islami Bank, Standard Bank and Uttara Bank’s cash flow has turned negative.
These banks have a negative cash flow of over Tk 12,881 crore. Among the listed banks, Al-Arafah Islami Bank, Dhaka Bank, National Bank, Rupali Bank, Trust Bank and UCB have not yet released their financial reports. The cash flow of rest other banks is positive. Southeast Bank’s cash flow was negative in January-March last year.
According to the Southeast Bank, the cash flow has gone to positive from negative as loan disbursements have decreased and borrowings have increased compared to the last year.
Shahjalal Islami Bank data revealed that, the cash flow has become negative due to the decrease of deposits compared to the same period of last year. Negative operating cash flow means a cash crunch. When the operating cash flow of an organization becomes negative, various problems arise in the business management of that organization. It becomes difficult to pay the debtor’s debt on time.
City Bank is in the worst position among the banks facing liquidity crisis. During January-March this year, the bank’s cash flow stood at Tk 22.7 against per share with a negative trend. As a result, the company had to face a liquidity crisis of Tk 2,355.32 crore.
Premier Bank is in the second place. The company’s cash deficit amount has stood at Tk 1,653.26 crore. The negative cash flow is at Tk 15.85 per share.
Bank Asia is in the next place with a negative cash flow of Tk 11.57 per share. The total negative cash flow of the company is Tk 1,248.95 crore.
Besides, there are negative cash flow of AB Bank at Tk 1,341.32 crore, BRAC Bank at Tk 920.15 crore, Dutch-Bangla Bank at Tk 459.19 crore, EXIM Bank at Tk 168.5 crore, First Security Islami Bank at Tk 933.58 crore, IFIC Bank at Tk 960.58 crore, Mutual Trust Bank at Tk 124.9 crore, NRBC Bank at Tk 724.99 crore, One Bank at Tk 558.65 crore, Shahjalal Islami Bank at Tk 304.61 crore, Standard Bank at Tk 924.61 crore and Uttara Bank at Tk 65.63 crore.