Photo : Messenger
Despite the removal of the deposit interest rate limit by Bangladesh Bank, the liquidity crisis within the country's commercial banks persists and is, in fact, becoming more pronounced day by day. Additionally, the call money rate for this month has surged to its highest level in the past 11 years.
Stakeholders have highlighted that substantial amounts of money are exiting the market, attributed to the rise in defaulted loans, sluggish growth of deposits amid high inflation, and the selling of dollars from foreign exchange reserves. Compounding the issue, the central bank refrains from lending to the government to control inflation. Consequently, the government's borrowing from commercial banks has intensified the liquidity crunch, leaving banks grappling to sustain their day-to-day operations without the assistance of the central bank.
As per a report from Bangladesh Bank, approximately Tk 46,000 crore that was previously held outside the banking system has returned to the banks as deposits over the last four months. Consequently, there has been a notable upswing in the overall deposits within the banking sector. However, concurrently, there is a rising trend in the amount of borrowing from the central bank by commercial banks. Last Wednesday marked a record as various distressed banks collectively borrowed Tk 24,616 crore in short-term loans, surpassing the previous highest borrowing record of Tk 24,455 crore on October 25.
Mezbaul Haque, the Executive Director and Spokesperson of the Bangladesh Bank, has noted that banks are intensifying their investment in government bills and bonds. Simultaneously, funds are being raised through the sale of dollars. Additionally, the Bangladesh Bank has raised the policy rate as a measure to curtail money supply, potentially leading to a liquidity shortage in the market.
He emphasised that if the Central Bank refrains from lending at this juncture, the crisis is likely to escalate. Furthermore, he noted that implementing contractionary measures simultaneously in all areas is challenging, which is why the Bangladesh Bank continues to engage in lending activities.
According to Bangladesh Bank data, 25 banks and 3 financial institutions borrowed Tk 12,883 crore against the seven-day term repo last Wednesday, with an interest rate of 7.85 percent. A bank took Tk 36.61 crore against a one-day term repo, with an interest rate of 7.75 percent. Six Shariah-based banks have borrowed Tk 4,027 crore for a period of 14 days at an interest rate of 6.75 percent to 8.50 percent.
A bank has taken Tk 215 crore for one day at 9.75 percent interest as 'standing lending facility'. And under one-day term liquidity facility, 14 banks have taken Tk 7,499 crore at 7.75 percent interest.
Meanwhile, in addition to borrowing from Bangladesh Bank, one bank is also borrowing from another bank in interbank loan. Last Thursday, the volume of transactions in call money market was Tk 4,293 crore, with an average interest rate of 9.14 percent. And last Wednesday, the loan amount was Tk 3,738 crore, with an average interest rate of 9.13 percent.
According to the data of Bangladesh Bank, the average interest rate in June this year was 6.05 percent, in July it slightly increased to 6.42 percent. The lending rate rose to 7.23 percent in October, a day after the central bank hiked the policy rate. And at the beginning of December, the call money rate reached to 8.53 percent.
Lastly, Bangladesh Bank rose the policy rate by 50 basis points to 7.75 percent. As a result, the interest rate of the money borrowed by the banks from the central bank has also increased. That is, Bangladesh Bank is on the path of more contractionary money supply. In this system, banks in crisis are borrowing money from Bangladesh Bank at high interest rates.
Syed Mahbubur Rahman, the Managing Director and CEO of Mutual Trust Bank, remarked on the impact of the policy rate increase, stating that it is already manifesting in the money market. The tightening of money is expected to lead to a further decrease in the private credit flow from banks.
He also said that the money market was a means of liquidity management for the banks to meet their needs easily. A rise in rates here means that banks will tend to collect more interest-bearing deposits.
Messenger/Disha
