Liquidity Crisis Essay

At present our commercial banks are passing a difficult situation. Most of the banks are in liquidity crisis. And this type of shortage of money makes difficult to engage in various transactions. Now the main causes behind this are given below:- Currency value: – In the recent year, our country has experienced a decline in the value of Tk against currency which has created has huge liquidity crisis in the banking sector. For this reason our country has failed to collect maximum amount of US dollar required to open letter of credit (LC) for local businessmen to import essential commodities for the country. As a result the importer is facing a severe crisis in their business. Mandatory reserve: – Banks need to reserve huge amount of money to maintain CRR and SLR. As it is mandatory duty of them. BB has recently increased the rate of CRR and SLR as result the problem of liquidity crisis has been aggravated recently. Government credit: – To decrease the deficit budget unit govt. are taking loan from commercial banks. And this thing create extra burden to our banking sector and it cause more liquidity crisis in that sector. Inflation: – The liquidity crisis of the banking sector has been accelerated by the increased amount of inflation, thus increasing the price of overall commodities for general people. To keep pace with this inflationary effect, the people withdraw savings from the banks and use this fund for their transaction expenditure. As a result bank faces liquidity crisis. Non-recovery loan: – the overall percentage of recovery loan is very alarming. And this is another important reason to increase the liquidity sector of commercial banks. Proposed budget: – the proposed budget create a liquidity in the banking sector due to its over-reliance on domestic borrowing for implementing the annual development program.