Dynamics of Bangladesh money market changes amid plummeting demand for formal credits due to persisting economic sluggishness, making banks look for alternatives like treasuries and retail lending, sources said.
Bankers and money-market analysts have said as the investment opportunities keep squeezing following the changeover through the July-August mass uprising, commercial banks used to invest in the high- yield government securities or interbank spot market targeting liquidity crisis-hit banks to gain more.
But the gradual fall in the yield of treasury bills and bonds because of government's cautious bank-borrowing approach and the central bank's frequent cash-feeding to the struggling banks in recent times lowereswitch. demand for funds in the call-money market. Such a development has prompted the banks with surplus funds to look for alternative earning options.
As a matter of fact, the banks' dependence on low-yielding SDF (standing deposit facility), the floor rate of the IRC (interest rate corridor), continues to rise while reliance on SFL (standing lending facility) dropped remarkably in recent days.
To keep the balance-sheet healthy amid such economic slowdown, the majority of the banks now focus on capital gains through buy-sale of government treasuries, trade financing and retail funding instead of corporate financing and central bank's deposit instrument - SDF, according to the market players, as private-sector credit growth plummeted to 7.66 per cent in November 2024 from 10.09 per cent recorded a year ago.
Seeking anonymity, a BB official said most of the commercial banks have enough liquidity to make business but the persisting economic slowdown dampened the private-sector credit demand in recent months.
On the other hand, the official said, the credit demand on the interbank spot market or call money dropped significantly mainly because of BB's direct cash injections into the problem banks.
"As the major investment scopes keep shrinking," the central banker said, "the banks participated more in treasury bills and bonds with offering comparatively lower rate in the bidding so that their bids are accepted, causing the fall in the yield."
Apart from that, he said, the banks' reliance on SDF continues getting enhanced even though the rate is much lower than that of the call money.
According to Bangladesh Bank (BB) data, the banks deposited some Tk158 billion in the first 15 working days in December (until December 22) using SDF. Since then, things have reversed completely as scheduled banks deposited Tk 363 billion in the subsequent 10 days up to January 07, 2025.
On other hand, the daily trade on call-money market in December last was Tk 50 billion while it came down to Tk 35 billion lately.
As for the treasury bills, the cut-off yield for 91-day, 182-day and 364-day dropped to 11.43 per cent, 11.80 per cent and 11.95 per cent from 11.65 per cent, 11.90 per cent and 11.99 per cent recorded on December 08 last respectively.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says the demand for credits by the enterprises came down significantly in recent months and the commercial banks are also following conservative lending approach to avert any further trouble in this economic sluggishness.
Now the banks having surplus funds are concentrating more on secure investment options like government treasuries and the SDF (8.50 per cent) instead of call-money market (over 10 per cent), he said.
"Yes, the yield in the government securities keeps falling but there is still option to make some capital gains through buy-sale of the securities," says the experienced banker about the switch.
Seeking anonymity, the treasury head of a commercial bank said the lenders are changing their strategies to cope with the economic slowdown diverting their focus to retail banking from corporate financing.
Simultaneously, he said, many of the banks borrowed credits from the BB against repo at 10 per cent and invested in 91-day treasury bill where the cut-off yield is 11.43 per cent and keep renewing the borrowed funds. "So, there is still a net gain," he added.
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