New Age, 26 July 2012
Bangladesh Bank’s decision asking 25 non-primary dealer banks to hold 40 per cent of treasury bills and bonds on a mandatory basis would deepen liquidity crisis in the banking sector because of further increase in government’s bank borrowings, said bankers and economists.
The BB on Tuesday issued a circular to the commercial banks saying that from now on 60 per cent government T-bills and T-bonds would be disbursed among the primary dealer banks and 25 non-PD banks would hold rest of 40 per cent bills and bonds.
A BB official told New Age on Wednesday that the central bank took the decision virtually to ensure that the government could borrow more from the banking channel and the non-primary dealer banks could also take the burden along with the PD banks.
He said that the 12 PD banks had been facing an acute liquidity crisis for the last few months due to their large investment in the treasury bills and bonds to facilitate government borrowings.
BB data showed that the 15 primary dealer banks and NBFIs had an investment of Tk 22,550.76 crore in bonds and bills till April 2012 which was higher by 22.83 per cent, or to Tk 4,192.02 crore from that of December 31, 2011.
The government, on the other hand, projected to take Tk 23,000 crore from the banking sector this fiscal year.
The managing director of a commercial bank said that the liquidity situation and the profit condition of the non-PD banks might fall due to such decision of the central bank.
He said the highest interest rate on treasury bond was 12 per cent while the maximum interest rate on treasury bill is 11.25 per cent.
‘The rate on deposits is 12.5 per cent. If a non-PD bank buys government bonds with 11-12 per cent interest, its profit will definitely fall,’ he said.
For this reasons, the profit and liquidity conditions of the banks will decrease in the coming months, he added.
He said that liquidity support facility that the banks got from the BB against the T-bills was not adequate. ‘Banks get only 25 per cent of the demand they place for the liquidity support,’ he said.
The official said that although BB claimed that the decision was taken to ease the burden of PD banks, ultimately their burden might not be reduced because of excessive government borrowings.
Former BB governor Saleuddin Ahmed said that the government’s borrowing from the banking source would be expanded due to such type of decision.
He said the government had drastically borrowed from the banking source in the last financial year 2011-12.
The financial sector would fall into a harmful situation if the government continued borrowing from banks, he said.
In the present context, the invested treasury bills and bonds have turned into idle assets as the banks failed to resell the bills and bonds to individual persons or other institutions because of the absence of a secondary bond market.
He said, ‘The liquidity crisis in the banking sector may fall in a negative situation as more banks have been attached in this process.’
He, however, said the liquidity crisis in the PD banks would relax through implementing the BB decision, but the pressure on overall financial sector would not calm down.
Bangladesh Economy 
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