Commercial banks are increasingly banking on costly borrowing instrument called SLF or standing liquidity facility created by the central bank at the expense of volatility in the existing interest regime, experts forewarn.
As the banks having liquidity stress are not getting positive response from the affluent banks on the interbank call-money market, they keep taking recourse to the costly borrowing option to somehow manage their liquidity penury.
As a matter of fact, costs of funds for the liquidity-strapped banks, having not enough instruments to avail repo facility, have been on the rise in recent months and the burden could pass on to the customers through an increase in the lending rates, according to the bankers and analysts.
As devised by the regulator, SLF is the upper ceiling of the interest corridor through which commercial lenders can access credits from the Bangladesh Bank (BB) at the rate of 11.50 per cent.
According to BB data, commercial banks borrowed a total of Tk 96.79 billion through the SLF window in September 2024. And the SLF-backed borrowing figure shot up to Tk 155.06 billion in the following month of October.
However, central bankers think the banks' increased reliance on SLF will force the commercial lenders to be very cautious in managing liquidity more efficiently in the long run.
Seeking anonymity, a BB official has said banks normally get credits to manage their liquidity requirements through using the borrowing- window repo, which was available every official day before the beginning of this financial year (FY'25).
Following prescription of the IMF (International Monetary Fund) as part of a US$4.70-billion lending package for stabilising the country's macroeconomic situation, the official said, the central bank cut the facility twice a week from July last.
And from this month, the central banker said, the repo facility got further curtailed to once a week, which creates some sort of pressure to the banks having liquidity tightness.
"That's probably a reason behind the banks' growing dependency on SLF for the time being. But things will get back to normal after banks get habituated with the situation," the official said.
Responding to a question over passing buck to the general clients, the BB official said the banks would face difficulties in passing on the increased cost as the demand for credits by the private sector keeps declining to reach 9.20 per cent in September. "So, the banks will have to be smarter and efficient in their liquidity management with careful lending to avert such burden," the central banker suggests.
Managing director and chief executive officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says the BB is giving repo facility once in week now. Banks which require funds in other days are sometimes unable to meet requirement from interbank market due to absence of Repo and liquidity shortage on the interbank market. Therefore, they are borrowing from BB's SLF window.
The treasury head of a private commercial bank, speaking on condition of not disclosing his identity, said the central bank, as part of its contractionary monetary policy, further curtailed the repo facility. On the other hand, there are many banks who are not getting funds from interbank sources even after offering rates as high as 11 per cent as the well-off banks skipped the spot market because of trust deficit.
And the banks facing liquidity tightness with not enough instruments for repo facility (10 per cent) will have no other option but costly SLF. "The growing dependence on SLF would possibly create volatility in interest-rate regime as some of the banks already increased lending rate over 15 per cent," the treasury official mentions. To avert the costly borrowing, he says, the banks need to pay more focus on deposit hunting through increasing the rates.
According to the BB, the daily average transaction volume was Tk 35 billion in the last two weeks. Even few months ago, the daily call-money transactions were hovering in-between Tk 100 billion and 140 billion.
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