Daily Star, 26 July 2012
Smaller banks are likely to be relieved of liquidity pressure with the central bank’s new rules to devolve investment in government securities to all banks from primary dealer (PD) banks alone.
Bangladesh Bank issued a circular on Tuesday introducing a new policy that says PD banks will have to receive 60 percent of the notified amount of investments in government treasury bills and bonds from earlier 100 percent.
The non-PD institutions must accept the remaining 40 percent, according to the circular to be effective from August 1.
“PD banks, especially smaller ones, were suffering a lot as they have to equally invest in government bills and bonds,” said Anis A Khan, managing director and chief executive officer of Mutual trust Bank Ltd.
Sonali Bank with about Tk 60,000 crore in deposits participates equally in the government investment tools with Mutual Trust Bank that has only one-tenth of Sonali’s deposits.
Like Mutual Trust Bank, NCC, Jamuna and Mercantile face limitations in commercial investments as a big portion of their money goes to government bills and bonds. But banks with a big deposit base, such as Sonali, Janata, Agrani and Prime, do not face the same pressure.
“Our profitability has gone down as we cannot lend enough because of a liquidity shortage,” said Khan. To cash in on the opportunity, he said some banks earned profits by lending in the call money market.
A senior treasury official at NCC Bank echoed Khan. “Our investable fund has shrunk due to our investment in government bills and bonds,” said the official, hailing the new policy. “It’ll help ease our liquidity pressure.”
The central bank’s latest move came against the backdrop of liquidity pressure on the commercial banks.
Of the 60 percent quota for the PD banks, they will have to underwrite 30 percent of it at the primary auction as per their Total Demand and Time Liabilities (TDTL), generally known as the size of their balance sheets.
The remaining 30 percent will be distributed equally among the 12 PD banks without any auction.
The cut-off price of the total notified amount will be fixed on the basis of primary auction, according to the central bank circular.
The other 40 percent of the notified amount of investments in government securities will be distributed, without any auction, among 25 non-PD banks as per their TDTL.
However, a treasury official of a non-PD bank said liquidity pressure on them might intensify due to the new rules.
The central bank has selected 15 PDs — 12 banks and three non-bank financial institutions — to deal with the government-approved securities in the secondary market.
Currently, three treasury bills (T-bills) — 91-day, 182-day and 364-day T-bills — are being transacted through auctions to adjust the government borrowing from the banking system. Four government bonds with five-year, 10-year, 15-year and 20-year tenures are also being traded in the market
Bangladesh Economy 
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