Government securities become investment hotcakes for institutional and individual depositors as increasing bets on treasury bills and bonds tempt them away from banking system, sources say.
Allured by a record rise in the rates of returns on the government fundraising instruments, especially the short-term ones, such institutional and individual depositors in the banking sector have started diverting their funds into the risk-free investment tools despite a sort of cumbersome procedure, putting more pressure on the banks' depleting liquidity, bankers and officials have said.
According to them, the depositors in the banking system found the government securities more profitable than the bank rates at a time when other investment options are getting squeezed.
As a result, the depositors, the large ones in particular, started making a beeline towards the treasury bills and bonds--two major investment instruments issued by government to borrow funds from the banking system as part of its domestic borrowing to make up for recurrent budget shortfalls.
Sources at central bank of Bangladesh have said institutional and individual depositors mostly take part in the non-competitive bids so that their offers get accepted without any competition at the weighted average rate.
According to its statistics, the share of the non-competitive bids against the notified auction demand was only 10 per cent in June 2023 from when the rates kept climbing fast. Now the share crossed 20 per cent.
Seeking anonymity, a Bangladesh Bank official says there are two areas in the bidding on government securities - competitive and non-competitive ones. Primary-dealer banks and other banks bid for competitive area while institutional and individual investors normally put their stakes on non-competitive ones.
In the competitive area, the official says, the participants need to compete with one another over rates. And the government will decide regarding the cut-off yield considering its overall liabilities and requirements.
"So, there is a risk of not getting their bids accepted. That's why institutional and individual investors chose non-competitive option," the central banker adds.
Citing the auction guidelines, the official says there is a maximum ceiling of 30 per cent of the notified amount in each auction for the non-competitive bidders. "Now, it's crossed 20 per cent and we're receiving huge response from the institutional and individual investors."
Another central banker, who also preferred not to be quoted by name, has said they have been witnessing more participation of such investors in the treasury bills where the rates are much higher than that offered by the commercial banks.
The rates in 91-day, 182-day and 364-day treasury bills increased to 11.10 per cent, 11.20 per cent and 11.40 per cent respectively, while deposit rates in most of the banks are hovering in-between 7.0 per cent and 9.50 per cent.
"That's why they (institutional and individual depositors) are more interested in treasury bills." The official also says anyone can take part in the auction of the government securities through using the cliental-service window in banks but they need to open BPID (business partner identification) number, and it will be processed by the central bank like the BO (beneficiary owner) account on the capital market.
According to the BB data, the cut-off yields in two-year, five-year, ten-year, 15-year and 20-year securities were 10.20 per cent, 10.35 per cent, 10.74 per cent, 11.18 per cent and 11.23 per cent respectively.
The treasury head of a private commercial bank says they had launched an awareness campaign supporting people to get registered in investing in government securities riding on the higher rates.
"And we received good response from them. As we found a good number of our own depositors diverting their funds into the government securities, we stopped the programme considering our possible liquidity stress," he adds.
Managing Director and CEO of Mutual Trust Bank Limited (MTB) Syed Mahbubur Rahman also says there is tightness in the liquidity situation in the banking channel because of multiple factors.
The banks have to buy costly dollar from the central bank to meet their import liabilities while banking sector is now meeting government's overall domestic bank-borrowing requirements, which puts pressure on the liquidity, he said.
On the other hand, the experienced banker mentions, the commercial banks are concentrating more on adjusting their year-end balance sheet and keep pushing up the deposit rate, which is still lower than the rates in T-bills and T-bonds.
Because of higher returns, institutional and individual investors have already started diverting their funds into the government treasury instruments.
"It puts additional pressure on the banks under the current context and there is a perception among many that the rates in the government securities would go further. So, the flow of corporate and individual depositors would go further in the coming days," he says.
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