Liquidity crisis: Banks borrow Tk 15,120cr from BB in a day


Staff Reporter :
As liquidity crisis has deepened in the country’s financial sector commercial banks have continued to borrow from Bangladesh Bank to meet their liquidity shortages despite a hike in the policy rate.

In an auction on Monday, 38 banks and two non-bank financial institutions (NBFIs) took Tk 15,120 crore from the central bank through repo and liquidity support facility.

Banks have been availing liquidity support from the central bank every working day for the last couple of months amidst tight liquidity in the banking sector.

Amid slow recovery of outstanding loans and lower collection of deposits, while several banks are meeting their demand by borrowing from the central bank every working day for the last couple of months, said a senior central bank official.

The managing director of a fourth-generation private bank on condition of anonymity told The New Nation that since his bank cannot meet its daily expenses with the cash money in hand, it is forced to borrow from the central bank.

Around half of the 61 banks in Bangladesh borrowed around Tk 15,000 crore from the central bank on Tuesday.

Bankers said that the foreign exchange market crisis, high inflation, growing interest rates of government treasury bills and policy rate hikes created a tight liquidity situation in the overall banking sector.


However, most banks nowadays are taking liquidity support from the central bank and investing on government treasury bills as the latter’s interest rate has reached 11 percent, they said.

“The interest rates of deposit products have gone up after the withdrawal of the lending rate cap which also pushed banks to collect funds from the central bank,” they added.

On Monday’s auction, three banks took Tk 202.70 crore through a one-day repo facility while 20 banks and two NBFIs took Tk 7,550 crore through a 7-day repo facility.

Moreover, 12 banks took Tk 6,882 crore through a one-day liquidity support facility while three Islamic banks took Tk 485 crore through a 14-day Islamic bank liquidity facility.

The interest rates were 7.75 percent, 7.85 percent, 7.75 percent and 7 percent to 8.50 percent respectively.

Regarding the current central bank’s support to stabilize the money supply in the banking sector, eminent economist and Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “If the central bank continues to provide liquidity support to the banks, it will mean the regulator has printed new money and this will hike the country’s inflation rate.”