Interbank call-money market has yet to get vibrant even amid Ramadan business binge despite various regulatory moves as affluent banks' trust deficit over their peers prompt their surplus fund switch into low-yield standing deposit facility (SDF).
Because of the latest switch of the surplus funds of the well-off commercial banks, the volume of cash deposits in the state-guaranteed SDF continues ballooning while the transactions on interbank market are not gaining momentum.
Such paradigm shift on the money market comes out as a matter of serious concern for the banks that need short-term credits to maintain their day-to-day banking operations, officials and bankers said.
They observe despite higher bets offered on the call money, the lenders feel comfortable to put their un-invested money in the SDF or reverse repo of Bangladesh Bank (BB), although the rate is quite low on the sovereign instrument.
As a matter of fact, the SDF has suddenly turned into investment hotcakes for the commercial banks in very recent days.
According to statistics available with BB, the affluent banks kept some Tk 183.44 billion in the overnight deposit scheme of the Bangladesh Bank in the first seven working days of this month. According to the calculation, the banks daily deposited almost Tk 26.21 billion with the state-guaranteed deposit instrument.
On the other hand, a total of Tk 347.54 billion was transacted on the call-money market in the first seven working days of this month with daily average volume of Tk 49.64 billion, according to the data. Even few months ago, the daily call-money transactions were hovering in- between Tk 100 billion and 140 billion.
The transactions in call money normally go up remarkably during the holy month of fasting and festivals with rising demand for credits, as has been observed in the past. But this time around, the volume transacted on call-money market rose slightly, but the figure was much lower than that of normal time a year ago.
The central bank has already taken various steps to resuscitate the moribund interbank spot market in recent months--but all this fails to allure affluent banks into the market.
Seeking anonymity, a BB official says the inflow of bank funds continued rising in the SDF, which is quite surprising at a time when the demand for credits from the interbank sources is too high.
The central banker says they were expecting that the transactions on the call-money market would go up following the BB decision over squeezing repo facility to once a week from five days.
"But, we're seeing different picture now as banks feel not comfortable with the call-money market. Trust deficit in the current context of banking operations could be the reason," the central banker told the FE in explaining the switch.
Banks usually choose emergency loans from the call-money market to fill the asset-liability mismatch, comply with the statutory CRR and SLR requirements and to meet any exigent demand for funds.
Bankers who are struggling to maintain regular banking affairs because of the liquidity tightness say such tendency of the banks having surplus credits will undoubtedly put pressure on the cash-hunting lenders to go for costly borrowing from the central bank through SLF (standing liquidity facility), which will create volatility in the interest regime.
The treasury head of a private commercial bank, who prefers to be anonymous, said there are many banks who are not getting funds from interbank sources even after offering rates as high as 10 .50 per cent but the affluent banks feel comfortable in keeping their un-invested credits in SDF where the rate is 8.0 per cent.
The fund shortage starts prompting the liquidity-strapped commercial lenders to go for costly borrowing from the BB through the SLF instrument where the rate is 11.50 per cent.
He says the banking regulator needs to discourage growing usage of SDF immediately to bring vibrancy in the call money market. "If the banks' dependency on using costly funds growing, it would create volatility in the interest regime," the treasury executive said.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says operational board of each bank normally fixed the counterpart limit through which the banks lend their surplus funds to the selected bank.
"The boards of many banks become conservative squeezing the counterpart limits considering current state of the banking industry due probably to the trust deficit, which could be a reason behind the banks getting least focused on call-money market," the experienced banker told the FE.
Mr. Rahman says banks mostly meet their funding needs through using the banking regulator's borrowing windows like repo and ALS. "Transactions in call money market may go up a week later," he hopes.
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