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Bankers in fear of huge pressure on call money market ahead of Eid

  • Published at 09:55 pm May 20th, 2019
File photo of Bangladeshi notes of different denominations Mehedi Hasan/Dhaka Tribune

Most of the banks are facing cash crisis due to slow deposits growth and lacklustre loans recovery

Bankers are in fear of more pressure on call money market ahead of Eid-ul-Fitr amid persisting liquidity crisis in banks, which has reduced investment funds and increased the tendency to borrow from the call money market.

Most of the banks are facing cash crisis due to slow deposits growth and lacklustre loans recovery. 

The demand for cash will increase during the upcoming Eid-al-Fitr as people make a lot of purchases during the period and many organizations pay salaries and allowances ahead of Eid, Pubali Bank Managing Director and CEO MA Halim Chowdhury has told Dhaka Tribune.

Talking to the Dhaka Tribune, Southeast Bank Managing Director M Kamal Hossain has said that there is already a lot of pressure on the call money market due to liquidity crisis and it will increase in the coming days ahead of Eid.

According to Bangladesh Bank data, inter-bank call money rate was 4.56% (weighted average) on 19 May, with the rate remaining above 4% for the last few days. 

"Just ahead of Eid, there will be pressure on the call money market. But this pressure will not be bigger than before. Besides the call money market, the commercial banks are borrowing from Bangladesh Bank through repo," said Syed Mahbubur Rahman, chairman of Association of Bankers, Bangladesh (ABB) and managing director of Dhaka Bank. 

Repo is a short-term fund that the central bank gives to commercial banks in case of cash shortfall at the current rate of 6%, while reverse repo is excess money that banks keep with the central bank. 

On liquidity crisis of banks, Syed Mahbubur Rahman said that the crisis was leading to shortage of greenbacks to meet import payments.

“On the other hand, individual deposits are being diverted to the government schemes mainly due to higher interest rates on public savings instruments than deposit rates offered by the commercial banks,” he added.

He said all banks had put in a strong effort on fund hunting resulting in a surge in interest rates on deposits.

Currently, most of the banks are facing fund crisis due to huge amount of defaulted loans. Unsatisfactory recovery from borrowers is also a big reason.  

At the end of 2018, the total non-performing loans stood at Tk93,911 crore  from Tk74,303 crore a year earlier, according to data from the central bank.