BB steps in to shore up banks’ financial muscle
The central bank yesterday rolled out long-term special repo, following lead of the Reserve Bank of India, to help banks, many of which are cash-strapped, prop up their liquidity base in a way that they are able to adequately prime the pump during these extraordinary times.
Under the particular repurchase agreement (repo), banks will love funds from the central bank for just one year, up from 28 times at the moment, by keeping their Treasury bills and bonds as collateral, according to the Bangladesh Bank notice.
"Beyond any doubt, that is a great approach," stated Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
This will help banks enhance their liquidity base and allow them to extend loans less conservatively, said Rahman, the immediate past chairman of the Association of Bankers, Bangladesh, a forum of private banks' managing directors.
MA Halim Chowdhury and Emranul Huq, managing directors of Pubali Bank and Dhaka Bank respectively, echoed the same.
Banks must place their T-bills and bonds after securing their statutory liquidity ratio (SLR) as collateral, a fitness that would give security to depositors and the BB control more than the money flow to the marketplace as well.
Their SLR will be 13 % of their total time and demand deposit.
Excluding their SLR banks now hold T-costs and bonds worth about Tk 72,000 crore. Plus they will get up to 85 % of the face value of their T-bills and 5 % of their T-bonds.
The base interest rate on the special repo is 5.25 % or equal to the policy rate set by the central bank, explained a BB official. But the actual rate will be set at the auction from where in fact the lenders will get the fund.
This interest rate could be slightly higher than the policy rate, and the auction committee of the central bank will take the final decision to the end, he added.
Lenders will end up being permitted to take the financial support limited to the implementation of the Tk 95,619 crore-strong stimulus packages, which are dedicated to reviving the economy following the coronavirus-induced recess.
The long-term repo can help banks avoid the liquidity mismatch as they will have to hand out loans for at least twelve months oftentimes to businesses.
Most of the banks are actually unable to mobilise deposits from savers as people are less considering parking funds in banking institutions due to the ongoing rainy days.
This is a sort of quantitative easing, a convenient tool for central banks in times of financial meltdown or recession.
The Federal Reserve, the lender of England, the European Central Bank, the Reserve Bank of India are actually conducting quantitative easing to inject liquidity in to the market.
Under the method, they are directly getting T-bills and bonds from banks such that they can be able to finance their individual sector.
However in Bangladesh quantitative easing differs as the majority of the lenders don't have enough excess T-charges and bonds after keeping their SLR.
So, that is a time-befitting and far better policy measure granted the financial durability of the country's financial sector, the BB official added.
