Even a moratorium on injection of high-powered money by the central bank fails to resuscitate the call-money market as the affluent banks' trust deficit prompts switch of their surplus credits into state-secured SDF or standing deposit facility despite lower gains.
Because of the latest switch of the surplus funds of the well-off commercial banks, the volume of cash deposits in the SDF continues ballooning while the transactions on the interbank market keeps squeezing in recent days, causing serious concern for the banks that need short-term credits to maintain their day-to-day banking affairs, officials and bankers said.
They said despite higher bets offered on the call-money market, the lenders feel comfortable to put their uninvested money in the SDF or reverse repo of Bangladesh Bank (BB), where the rate is quite low.
As a matter of fact, the SDF has suddenly turned into an investment hotcake for the commercial banks in very recent days.
According to statistics available with BB, the affluent banks kept some Tk 279.23 billion in the SDF in the first seven working days of this month. According to the calculation, the banks daily deposited almost Tk 40 billion a day in the state-guaranteed deposit instrument.
On the other hand, a total of Tk 181 billion was transacted on the call- money market in these first seven working days of this month with daily average volume of Tk 26 billion, according to the data. Even few months ago, the daily call-money transactions were hovering in-between Tk 100 billion and 140 billion.
Sources at the BB said there was only a single instance of a bank using SDF, amounting to around Tk 4.0 billion, throughout the last financial year (FY'24). But since early September, things have reversed completely as scheduled banks on average daily deposited around Tk 40 billion in the last seven days.
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 said they were expecting that the transactions on the call- money market would go up following the BB decision not to inject the print money to support the struggling banks.
"But, we're seeing different picture now as banks feel not comfortable over the call-money market. Trust deficit in the current context of banking operations could be the reason," says the central banker in explaining the switch.
Banks usually choose emergency loans from the call-money market to fill their 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 have said 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 or standing liquidity facility, which will create volatility in the interest regime.
The treasury head of a private commercial bank, who prefers not to be quoted by name, says there are many banks who are not getting funds from interbank sources even after offering rates as high as 10 per cent but the affluent banks feel comfort in keeping their uninvested credits in SDF where the rate is 8.0 per cent.
The fund shortage starts prompting the liquidity-tightened commercial lenders to go for costly borrowing from the BB through the SLF instrument where the rate is 11 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 using costly funds growing, it would create volatility in the interest regime," the treasury executive says on a note of caution.
Under such challenging period of time, he adds, the central bank should not further limit the repo facility, which will be the last nail in the coffin of the cash-hungry banks.
Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman mentions that operational board of each bank normally fixes the counterpart limit through which the banks lend their surplus funds to the selected banks.
"The boards of the many banks recently squeezed the counterpart limits considering current state of the banking industry due probably to the trust deficit, which could be a reason behind the banks' least focus on call-money market," the experienced banker says.
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