Photo : Messenger
The liquidity crisis in the country’s banking sector persists unabated despite various measures being taken one after another. Instead, the situation is worsening day by day. In a surprising turn of events, the Bangladesh Bank is continuously providing money to address this crisis.
Last Wednesday, the Bangladesh Bank lent a record Tk 29,000 crore in a single day. Simultaneously, some banks borrowed Tk 3,000 crore from others (Call Money). In total, distressed banks borrowed Tk 32,000 crore from the Bangladesh Bank and other banks in one day, marking the highest borrowing in a single day.
The central bank has never lent such a large amount of money before. Last year, various banks borrowed a maximum of Tk 26,000 crore from the central bank in a single day. Additionally, borrowing ranges from Tk 20,000 to Tk 22,000 crore, but often banks are borrowing Tk 12,000 to Tk 18,000 crore.
A significant portion of these loans is taken for one day, while the remainder is taken for 7 days or 15 days. After the fixed borrowing period, banks face a liquidity crisis again when repaying the borrowed money, leading to further borrowing from the central bank. This has become the norm for banks in conducting their daily operations.
According to central bank sources, liquidity pressure has increased due to the rising demand for cash in banks to meet the demand for purchasing dollars from the central bank and to meet the increased demand during Ramadan and Eid while settling some large foreign liabilities. To cope with this pressure, borrowing from the central bank has escalated.
Meanwhile, loans have been outpacing deposits in banks recently. Additionally, dealing with the dollar crisis requires purchasing dollars with cash from the central bank. Simultaneously, the money borrowed against dollars from the central bank now needs to be repaid.
Moreover, the central bank is borrowing dollars from commercial banks to bolster reserves. Commercial banks are lending money with these dollars, which are then returned to the central bank after a specified period. Consequently, when dollars are returned, money must also be repaid. These factors have contributed to increased liquidity pressure in banks. Furthermore, the demand for cash in banks has surged due to Ramadan and Eid.
Bankers have highlighted that the money crisis is becoming increasingly evident in banks, primarily due to several reasons. Firstly, after the publication of the list categorizing banks into the red zone and yellow zone, the withdrawal rate from some banks has surged. Certain businessmen are withdrawing money from these banks without returning it, consequently diminishing the banks' cash reserves.
To address this situation, banks were previously covering their daily expenses with high-interest deposits. However, since the publication of the list, the withdrawal rate from existing deposits has also risen.
A senior official from a government-owned bank, speaking on condition of anonymity to The Daily Messenger, revealed that deposits worth Tk 5,000 crore were withdrawn from their banks following the list's publication. Government banks are being sustained by deposits from other government institutions. However, private banks, lacking such support, are facing an evident liquidity crisis, which is impacting the overall banking sector.
In this regard, Dr Zahid Hussain, former chief economist of the World Bank's Dhaka office, told The Daily Messenger that the banks' liquidity crisis primarily stems from three reasons. Firstly, a considerable portion of disbursed loans is not being repaid, resulting in a substantial increase in defaulted loans.
Secondly, apart from funds from the central bank, foreign currency is continuously being channeled to government banks from reserves to finance government purchases. Dollars are being acquired from the Bangladesh Bank against Taka, consequently depleting the banks' funds, which are being transferred to the Bangladesh Bank's vault.
Thirdly, a certain class of banks, particularly Islamic banks, which previously had surplus funds, are now encountering a cash crunch. Collectively, these factors have escalated the liquidity crisis in the market, necessitating funds from the central bank to alleviate the situation.
Meanwhile, alongside the cash crunch, foreign exchange reserves are dwindling. According to the latest statistics from the Bangladesh Bank, foreign exchange reserves have decreased by $112 crore in the last month alone. On February 29, net foreign exchange reserves stood at $2,057 crore, which decreased to $1,945 crore by March 27.
Messenger/Fameema
