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Liquidity crisis grips banks: Tk3,500 crore borrowed in a week from central bank

  • Published at 03:47 pm December 25th, 2018
File photo of the Bangladesh Bank building in Motijheel, Dhaka Mehedi Hasan/Dhaka Tribune

Inter-bank borrowing was highest on December 18, when Tk2,322.71 crore was lent between banks

Banks have been experiencing a liquidity crisis in the country for the last seven days, thanks to a high number of withdrawals and impending bank holidays ahead of the general election.

In order to meet customers’ withdrawal demands, Bangladesh Bank (BB) was compelled to lend Tk3,500 crore to the banks.

Several bankers opined that due to the banks’ annual accounts closing on December 27, followed by a two-day weekend, the general election on December 30 and a bank holiday on December 31, the five-day closure has caused scores of customers to withdraw cash from their accounts.

But they also believe recent government borrowing from the banks is also a factor in the banks not having enough funds available, thus, forcing them to reach out to the central bank.

Lending figures

Upon investigation, it was found that 21 banks have taken Tk3,500 crore in loan from the central bank, including Tk546 crore on December 18, Tk763.55 crore on December 19 and Tk924.46 crore on December 20.

Sources said that AB Bank Ltd had borrowed the most, with Tk400 crore, followed by Eastern Bank Ltd with Tk183 crore, Trust Bank Ltd with Tk50 crore, National Bank Ltd with Tk97.5 crore, NRB Bank with Tk41 crore, Uttara Bank Ltd with Tk27 crore and Standard Bank Ltd with Tk25 crore.

Inter-bank borrowing was highest on December 18, when Tk2,322.71 crore was lent between banks.

In terms of repo interest rates, on December 18 it varied between 4.25–9%, with the average interest rate standing at 5.86%.

Even the local call money market was affected, as minimum interest rates rose from 1.75% on December 18 to 2.8% the next day. Tk6,188 crore’s worth of transactions were made on December 20.

Bankers also remarked that over Tk77,000 crore , which was distributed as loans by the banks over the past two years, has still not been collected. 

Central bank sources said that from September 2016 till September 2018, the banks had distributed Tk242,106 crore as loans, but got only Tk164,365 crore in returns.

They also said that the banks are not being able to maintain their cash reserve requirement (CRR) and statutory liquidity ratios (SLR), while some banks are facing a tough time in preserving their required capital.

According to recent Bangladesh Bank statistics, the non-performing loans (NPLs) of banks rose by a staggering Tk10,030 crore from July to September this year, increasing the amount of default loans in the banking sector to Tk99,370 crore.

President of the Association of Bankers’, Bangladesh (ABB) and Managing Director of Dhaka Bank Ltd Syed Mahbubur Rahman told Bangla Tribune that banks borrowing from the central bank have definitely increased in recent times.

He also cited the upcoming five-day bank holiday as a major reason behind the increased borrowing.

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