Hard-up banks' quest for cash heats up call money in short-term interbank borrowing with the interest rate hitting a new high at about 9.2 per cent Thursday, indicating persistent liquidity problem.
Banking-industry people said banks took the overnight loan at the highest rate on the last day before year-closing to manage shortfalls on their many financial ratios, for example, ADR or advance-deposit ratio, amid overall liquidity stress in Bangladesh's banking system.
The sharp rise in the call-money rate, at which short-term funds are borrowed and lent on the money market, indicates higher cost of exigent funds for some banks, notwithstanding prevalence of some liquidity surplus in the overall system.
Banks extend overnight credit to one another to fill the asset-liability mismatch or to meet sudden demand for funds.
The duration of the call-money credit is one day. Banks resort to these types of borrowing to fill asset-liability mismatch, comply with the statutory CRR and SLR requirements and to meet sudden demand for funds.
Bangladesh Bank data show banks borrowed Tk19.4 billion on December 28 from the call-money market.
There were 53 deals made on the day. Many banks took it at its highest at 9.75 per cent while some at 7.75 per cent, averaging at 9.19 per cent.
People familiar with the matter in the industry told the FE that the main reason behind the fund shortfalls is that many banks have invested in higher-yielding government securities.
Besides, banks have to adjust their many ratios (for example, advance-deposit ratio) in December which requires funds or deposits, in their bid to keep their financials tidy.
"The number-one reason is liquidity crunch on the market," says Syed Mahbubur Rahman, managing director and CEO of a private commercial bank, Mutual Trust Bank PLC.
"Many banks having adequate liquidity have invested in government treasuries which are risk-free and the yield is much higher than in previous periods."
Managing director and CEO of another private bank, Dhaka Bank, Emranul Huq told the FE that on the last day of banking transactions on Thursday banks borrowed to show that ratios are right.
Mr. Huq said export proceeds are now much lower, which is another reason for the liquidity shortage on the market.
The banker, however, hopes that the liquidity state may stabilise during the upcoming January-February period of next year.
The rate rose to 7.23 per cent in October a day after the central bank's key policy rate was hiked and went up to 8.53 per cent in the early weeks of December.
High-priced dollar purchases by banks also cut down their assets in local currency.
Such higher call-money rate weighs on the profitability of banks as it mainly helps raise the interest on deposits.
However, 5-day short interbank-borrowing rate averaged Thursday at 10.04 per cent.
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