Cash feeding into banks registered an unprecedented rise in recent months amid major liquidity crunch following contractionary monetary stance the regulator has taken to combat inexorable inflation, officials said.
As the pressure on the overall liquidity continues mounting amid the central bank's belt-tightening moves, sources at the Bangladesh Bank (BB) said, commercial banks have an insatiable appetite for credits despite gradual increase in their deposit portfolio. And it drives the banking regulator to unrelentingly accept fund-requirement appeals from the commercial lenders.
According to BB statistics, the central bank provided liquidity support amounting to Tk 633.47 billion to the banks in June. The figure more than doubled to Tk 1.28 trillion the following month.
The uptrend in handouts to the banks continues as the entire monthly volume of the liquidity supports ballooned to Tk 1.33 trillion in August, Tk 1.67 trillion in September and Tk 3.12 trillion in October.
The volume of cash funneled into the fund-starved banks further swelled to Tk 3.45 trillion in November. As of December 27, 2023, the amount of BB liquidity supports this month already reached more than Tk 3.30 trillion, according to the official data.
Economists, as such, raise alarm about inflation spikes as liquidity support to the commercial banks continues rising to a large extent as borrowing funds from interbank window is getting much costlier because the interbank call-money rate now reached 9.16 per cent on December 27.
In their view of the higher fund flow into the market, economists say indiscriminate funding of all banks as would create more burdens on people in the form of further raise in the inflationary pressure.
The commercial banks can get financial supports mainly to meet their SLR and CRR requirements from the central bank through using short-term windows like REPO, liquidity supports and Islami Bank Liquidity Facility (IBLF).
Seeking anonymity, a BB official has said they have been receiving increased volumes of fund requirement from the scheduled banks in recent times against treasury bills and bonds.
"We are accepting all of their appeals considering current liquidity stress in the banking sector," the official says.
The central banker observes that the banking industry is reeling from immense liquidity shortfalls because of growing purchase of the high-priced US dollar from the BB and supporting full scale of government's domestic bank borrowing to meet budgetary deficit.
As a result, the excess liquidity and cashable funds in banking system continue shrinking, the official explains.
"If we (the BB) don't continue cash feeding to the banks as per their requirements under the current stress situation, the banks will be in severe liquidity crisis, which could take the call-money rate over the upper ceiling of IRC (interest rate corridor) that we don't want," the official says.
The BB data showed the excess liquidity in commercial banks dropped to Tk 1.58 trillion in October from September's Tk 1.64 trillion in successive contraction. In August and July, the volumes of surplus liquidity in banks were Tk 1.74 trillion and Tk 1.81 trillion respectively.
On the other hand, the cashable funds dropped to Tk 316 billion in October from July's count of Tk 392 billion.
Another BB official, who also preferred not to be quoted by name, said the volume of daily cash feeding to banks looked to be too high but the reality is different as banks keep repaying a large volume of credits regularly on their maturity.
For example, the official said, the banks received liquidity supports amounting to Tk 180 billion on December 27, 2023 when they repaid Tk 190 billion on maturity of their previous cash feeding.
"I think the volume of cash supports by the central bank is too high for the last couple of months as banks are in desperation to adjust their year-end balance sheets," the central banker added.
Alongside growing dollar buy from BB and government bank- borrowing stress, managing director and CEO of Dhaka Bank Limited Emranul Huq says the number of credit-starving banks keeps growing, which is a matter of serious concern for the economy.
The credit demand would definitely go up after the next parliamentary elections with resumption of development and more economic activities, which would further tighten the liquidity noose around the banking sector.
"So, we need to chalk out proper plan about the matter right at the moment," the experienced banker says, adding that the regulator needs to take proper policy measures to make market more liquid to avert such possible trouble.
When contacted, Chairman of Policy Exchange of Bangladesh Dr M. Masrur Reaz said giving support to the banks facing difficulties to maintain regular banking operations amid liquidity dearth is understandable and logical in the current context.
"If the facility is indiscriminately given to all the banks, it is not desirable and may have contributed further to inflation that has already hit the common people badly," he added.
"It should be targeted, providing credit supports to the banks which badly need the assistance for stabilising their financial health," Mr Masrur suggests.
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