A liquidity-feeding instrument titled Assured Liquidity Support (ALS) becomes a boon for primary dealer (PD) banks as the instrument holds a hefty share of the central bank's special funding facilities, bankers say amid its liquidation suggestion.
Some experts say the special fund-feeding recipe runs counter to government's contractionary monetary policy and could distort the money market.
ALS is a kind of overnight borrowing facility provided by the Bangladesh Bank (BB) for the PD banks, helping them meet their cash reserve ratio (CRR) requirement with the central bank.
Introduced in 2008, the ALS facility was designed to support PD banks in meeting their underwriting obligations for government securities (G-Sec) auctions. PD banks are required to purchase any unsubscribed portions of government securities, and in return, BB provides liquidity support at the repo rate, currently set at 10 per cent.
However, for the past four fiscal years, no such devolvement had occurred, leading the central bank to consider the facility redundant and potentially unfair to non-PD banks.
Officials argue that continuing ALS would distort market competition, as PD banks would enjoy advantages over non-PD banks despite the absence of devolvement obligations.
The IMF had also criticised the provision, recommending its termination as part of its broader macroeconomic-stabilisation strategy for Bangladesh.
There are a total of seven instruments through which the commercial banks can access special liquidity support from the central bank. Using the instruments, the banks altogether borrowed over Tk 1.43 trillion in July last. Of the amount, the 24 PD banks received Tk 1.31 trillion or an overwhelming 84.62 per cent of the entire special liquidity feeding.
The second-most-used instrument was Islami Bank Liquidity Facility (IBLF), with banks borrowing Tk 140 billion. The Assured Repo (AR) facility against special bond-holding meant for settling accumulated arrears to independent power producers and fertiliser suppliers became third, with Tk 42.99 billion disbursed, according to the BB data.
Special Liquidity Support (SLS) is another instrument through which the banks borrowed Tk 32.29 billion in July 2025 while they borrowed Tk3.06 billion using Capital Market Repo (CMR). Two other instruments - Liquidity Support against Claims of Remittance for Conventional Banks (LSR) and Mudaraba Liquidity Suppor (MLS)--remained unused.
BB officials have said as the PD banks have not been going through any devolvement for the last four financial years, the continuation of ALS would be irrational and have a detrimental effect on ensuring a level playing field for all banks.
Requesting anonymity, a BB official says the PD banks have extensively used the ALS since March and the growing trend continues on receiving information that the central bank is going to discard the facility from the second quarter of the FY'26.
"The PD banks' reliance on the ALS rises such a way that keeps distorting the spirit of the contractionary monetary stance of the central bank," the central banker told The Financial Express.
According to official data, the monthly ALS-backed borrowing came to Tk 784 billion, Tk 626 billion, Tk 973 billion and Tk 549 billion in March, April, May and June this year respectively.
Meanwhile, BB Governor Dr Ahsan H Mansur in March last approved a proposal directing the relevant departments to take steps to phase out the facility by the end of FY'25. But the decision was not implemented even after three months of that fiscal ended.
Speaking on condition of anonymity, another BB official said the ministry of finance late June last approved PD guidelines where such facility is waived with immediate effect. But the decision might create severe hurdles to some of the liquidity-starved PDs. Considering the matter, the central bank with the permission of the governor decided on deferring implementation of the new guidelines until this September.
The official said the finance ministry is going to hold a meeting this week where the ALS issue will be discussed. "After the meeting, it will be ascertained whether the liquidity support to be discarded immediately or would take more time."
Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank (MTB), notes that while some banks have sufficient liquidity, others are under significant stress. And a good number of banks have been managing liquidity through using various government borrowing instruments from the banking regulator.
At the same time, he said, the yield in G-Sec continues dropping under the prevailing sluggish investment regime but the fixed-deposit rate in banks is not falling in line with the G-Sec trend.
Also, the government is giving policy support to struggling businesses through loan-rescheduling and-restructuring facility and it will slow down the cash-recovery drives.
"Under such circumstances, removing ALS would further tighten liquidity pressure on banks," says the top executive of the PD bank.
The banker requests the regulator to hold discussions with stakeholders before implementing the liquidation decision.
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