High-powered money makes a big comeback in banking aid with the central bank already feeding four cash-hungry banks with Tk 185 billion under government policy to protect some crisis-ridden lenders.
Sources at the Bangladesh Bank say the liquidity support is meant solely for "safeguarding depositors".
The recipient banks cannot use the credits for fresh lending or facilitating any borrowers. "The money will only be used for meeting depositor obligations," said one BB official about the tag.
In the first go, the printed money has been pumped into the accounts of National Bank, First Security Islami Bank, Social Islami Bank and EXIM Bank, ending an embargo given on what is euphemistically called high-powered money that usually fuels inflation.
The regulatory move comes as the banks have faced difficulties in payback to the depositors following reported massive loan-related irregularities during the Sheikh Hasina government. As a matter of fact, the depositors' trust on the banks has been on a downslide. To assist the banks regain the trust of the depositors, the BB took the direct cash-support recipe.
Seeking anonymity, a BB official says they have decided to give liquidity supports directly from the central bank to the four struggling banks.
Under the decision, the official adds, four banks have received cash supports from the central bank in-between Tk 40 billion and Tk 50 billion each.
Responding to a question, the central banker said the banks would not be able to use the funds on loan purpose or facilitating borrowers. "The bank can only use the credits to meet depositors' needs. We'll do vigorous monitoring over usage of the funds regularly."
The banks will get the liquidity support at the policy rate (10 per cent), the BB sources said.
Regarding the high-powered money, another BB official, who preferred not to be quoted by name, said the central bank has been using liquidity-sterilising instrument like BB Bills since last week after a pause of three years and already mopped up Tk 5.09 billion from the market.
"We'll continue using such instrument in the coming days to offset such money from the market to make a balance. So, it will not be a major issue," the central banker explains.
Chairman of National Bank Abdul Awal Mintoo said the central bank governor, Dr Ahsan H. Mansur, called high-ups of the four banks for a meeting last week regarding such special fund-support programme.
"It's a good and timely initiative by the BB to protect the banks having liquidity stress," he says about the bailout measure.
He said they would use the funds in an efficient way to regain the trust of the bank's valued depositors. "Inshallah, the bank will be able to rebound in the next three months through boosting customer trust."
The weak state of a dozen commercial banks comes to the limelight soon after the fall of the Sheikh Hasina regime following a mass-uprising. To revitalise such commercial lenders, the central bank took a guarantee-backed liquidity-feeding recipe involving the affluent banks in September last.
But the bailout initiative benefits the liquidity crisis-ridden banks little because of drawn-out disbursement process and excessive cost of fund, as high as over 13 per cent. It prompted the banking regulator to initiate the direct liquidity-supporting programme.
Until November 19, 2024, seven liquidity-hungry banks had received Tk 70.50 billion from the banks having liquidity surplus.
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