A major liquidity crisis is plaguing the country's money market well before Eid-ul-Fitr, courtesy of the money market that is suffering from a crisis of its own.
The crisis has spread to almost all the banks, especially the private banks.
Even four major state-owned banks now have to borrow from the money market.
On the other hand, Bangladesh Bank has been vigilant in tackling the crisis, lending about Tk6,000 crore on average every day.
This amount has to be paid to commercial banks as repo and assured liquidity support (ALS).
The central bank is also playing a role in controlling the interest rate in the call money market.
But as the liquidity demand has intensified in recent times, the call money market also heated up, leaving no other option for banks than to borrow at higher rates.
Therefore, the weighted average interest rate on the call money market increased to 4.54% in April from 2.75% in the previous month.
However, lending banks are no longer interested in investing in call money due to the fixed interest rates.
Banks are now lending for 2-14 days on short notice instead of call money.
In this case, the interest rate has risen to 8%. If the term is longer, the banks will have to pay more than 9% interest.
However, the country's banking sector now has a maximum interest cap of 9%.
Ahead of Eid, economic activities in the country have also intensified, resulting in an increased demand for cash, bank officials said, adding that banks usually rushed to the call money market to tackle any immediate cash requirement.
Bangladesh Bank data showed that the banks on average borrowed Tk7,153.73 crore each working day from the call money market in April, compared with Tk7,144.20 crore in the previous month.
What stakeholders say
According to the Bangladesh Money Market Dealers Association (BAMDA), an association of banks' treasury officials, Bank Asia is currently at the forefront of lending money in the country's money market.
Besides, IFIC, Uttara and Pubali Bank are also on the list of lender banks.
State-owned commercial banks also have to borrow from these private sector banks.
Most of the local private banks are currently carrying out daily transactions with loans from other banks, including Bangladesh Bank.
AB Bank, Dutch-Bangla, Dhaka, NRBC, Meghna, South Bangla, Midland and a few other banks have the highest liquidity demand.
Dhaka Bank also has to borrow from the money market.
Asked about this, the bank's managing director Emranul Haque told the media: “So far there was no problem in getting money from the call money market at low interest. But suddenly there is a tug of war for liquidity in the money market. We are borrowing through various means including swap, repo, and short notice to meet our requirements. But the problem is that the interest rate on short notice has also gone up by 6%.”
If this situation lasts till Eid-ul-Fitr, then there is no problem. But in the long run, it will be a big risk for the country's banking sector, he added.
Mutual Trust Bank managing director and chief executive officer Syed Mahbubur Rahman said that demand for liquidity usually increases before Eid, as requirement for cash goes up at the time.
Apart from the issue, the market liquidity situation came under more stress due to the injection of the US dollars by the central bank in the market and that is why the circulation of money has declined sharply, said Mahbubur, also former chairman of the Association of Bankers, Bangladesh.
As a result, the interbank call money rate has increased in recent days, he also said.
Asked about the liquidity crisis, Bangladesh Bank executive director and spokesperson Md Serajul Islam said that appropriate steps were being taken.
He told Dhaka Tribune that the demand for cash liquidity in the money market increases during any festival, especially during both the Eids.
This is due to the increasing demand for liquidity in the currency market at the moment. Hopefully, the situation will return to normal after Eid, he hoped.
However, banks need to be more careful and cautious in managing their funds, he added.
