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Bangladesh’s banking system has, at different points in recent years, experienced both comfortable and tight liquidity conditions. However, a recurring structural feature remains: liquidity does not always translate into broad-based and inclusive credit expansion. This phenomenon better described as “liquidity without full transmission” reflects not a shortage of funds, but an uneven and selective allocation of credit. This article offers a realistic, Bangladesh-grounded analysis supported by indicative patterns, highlighting both supply- and demand-side dynamics and proposing a balanced way forward.
Introduction: Not a Shortage, but a Selective Flow
In theory, banks transform deposits into productive investments. In Bangladesh, this mechanism is functioning—but not uniformly across sectors and borrower segments. The issue is not whether credit exists, but where it flows and where it does not. At times, the system holds excess liquidity; at other times, it faces tightening conditions driven by external pressures (imports, forex, inflation). Yet across these cycles, one pattern persists: Credit transmission remains uneven rather than absent.
