Borrowing by scheduled banks from the Bangladesh Bank through REPO (repurchase agreement) shot up significantly in recent months.
As per the central bank data, the banks’ borrowing through REPO was to the tune of Tk2,07,500 crore in January-May this year.
On the other hand, the borrowing from the same head was Tk50,390 crore in August through December period last year.
In January-May, the highest monthly borrowing by the banks was Tk 82,415 crore in March.
In August-December last year, the highest monthly borrowing through repo was Tk14,439 crore in September.
To make the REPO easier for the banks, the BB during the shutdown period has taken a number of initiatives including reduction of REPO rate interest. In April, it reduced the REPO rate to 5.25 per cent from 6 per cent to make the cheaper fund available for banks.
Sources in the banking sector said the borrowing increased mainly due to the government’s heavy borrowing from the banking sector to meet up budgetary expenditure amid the ongoing coronavirus pandemic.
Although the government’s non-development expenditure increased since the outbreak of coronavirus in March this year, the collection of revenue in the first ten months of the current fiscal year was around half of its annual target.
To meet up the deficit, there was no other option for the government other than borrowing from the banking sector.
As a result of the government’s heavy borrowing from the banking sector, many banks fell into liquidity mismatch, leading them to borrow from the central bank through REPO.
The government revised upward its bank borrowing target to Tk82,421 crore for the outgoing fiscal year from Tk 47,364 crore original borrowing target.
In the fiscal budget for FY 2021, the government projected to borrow Tk4,980 crore from the banking sector.
Talking to Dhaka Tribune, Mutual Trust Bank managing director and chief executive officer Syed Mahbubur Rahman said ‘Although the trade financing and other corporate financing business of banks were impacted severely during the pandemic, the banks’ financing to the government has increased during the pandemic.’
As result, the banks’ borrowing from the central bank through REPO increased, he said.
Many banks also borrowed from the central bank through REPO to comply with the cash reserve ratio amid their fall in earnings, Mahbubur said.
