Central bank assures IMF of ridding non-PD banks

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Nazmul Ahsan
The Bangladesh Bank (BB) has assured the International Monetary Fund (IMF) of revising its latest policy in respect of mandatory investment by non-Primary Dealer (PD) banks in government securities soon as the international lender is opposed to the measure for the sake of a stable banking system.
The assurance came during a series of meetings held between the members of the visiting mission of the IMF and officials of the BB and the Ministry of Finance (MoF). The ECF team arrived in the capital on November 27 last for a 10-day visit.
"The policy asking non-PD banks to purchase government bonds and Treasury Bills will be revised soon as the IMF believes the measure is contrary to global practices," a senior BB official told the FE on Saturday.
As soon as the liquidity position of the banking sector becomes stable, the non-PD banks would no longer be required to purchase 40 per cent of the government securities, which is now mandatory, he added.
The BB officials, however, said the regulation was made to ease the liquidity pressure from PD banks and was ad hoc in nature.
The BB in a circular, issued on July 29 last, relaxed PDs investment to government securities to 60 per cent and made it mandatory for non-PDs to invest in the remaining 40 per cent.
The new policy came into effect from August 1 this year.
The BB's latest move came against the backdrop of excess liquidity worth around Tk 240 million held in government securities by 12 PD banks after maintaining their statutory liquidity ratio (SLR) with the central bank, which has created a liquidity pressure on the commercial banks.
Currently, 15 PDs-12 banks and three non-banking financial institutions (NBFIs)-are functional.
Three treasury bills (T-bills) are being transacted now through auctions to adjust the government borrowing from the banking system. They are 91-day, 182-day and 364-day T-bills.
On the other hand, four government bonds with 5-year, 10-year, 15-year and 20-year terms are being traded in the market.
The central bankers said they are seriously contemplating introducing secondary bond market by the current month, a longstanding demand of the PD banks.
The non-PDs would be free from investing in the government securities soon after the secondary bond market comes into being, another BB official said, adding almost ninety per cent works have been completed to introduce the secondary bond market.
Meanwhile, a senior official in the MoF said the concept of PD and non-PD banks is very much accepted globally with their distinct characters remaining unchanged in investment portfolio of government securities.
"Any variation in the very characteristics between PD and non-PD should not be allowed for a longer period," a senior finance official told the FE, adding the suggestion of the IMF is justified.
Besides, the BB at the meeting assured the IMF of continuing restrained monetary policy throughout the rest of the current fiscal year, until June next.