Government securities (G-sec) market for state borrowing boomed to Tk 6.0 trillion in a fast expansion by around Tk 520 billion in this fiscal's first five months for juicy returns.
Sources said lucrative yields on the risk-free investment instruments drew rapidly-growing participation of institutional and individual investors during the July-November period.
Officials and money-market analysts have said the government borrowing from the financial sector through issuing securities keeps rising because of growing budget-financing shortfalls for less-than- expected level of revenue incomes.
But government dependence on bank borrowing to meet budget deficits further tightened the existing liquidity pressure on commercial banks. As a matter of fact, the scope of getting formal credits from the banking sector for the private sector is squeezing.
According to statistics available with the central bank, the outstanding balance of government securities stood at Tk 5.49 trillion at the end of FY'24 from Tk 4.89 trillion recorded in FY'23.
The outstanding balance in previous four fiscal years (FY'22, FY'21,FY'20 and FY'19) was Tk 3.89 trillion, Tk 3.19 trillion, Tk 2.80 trillion and Tk 1.99 trillion respectively.
Seeking anonymity, a Bangladesh Bank official has said government's domestic borrowing is on the upturn significantly because of widening budget-financing deficit for not getting expected level of revenues.
Government's domestic borrowing, especially from the banking sector, normally increases from December when annual development programme (ADP)-implementation activities get in high gear. But it might not happen this time around as the interim government, as part of its austerity measures, is revising the existing projects to cut the spending.
But ownership pattern of G-sec market keeps changing too fast with the institutional and individual depositors being allured by the lucrative stakes dominating the auctions of treasury-bills and treasury bonds, he said.
"We're now receiving too many applications particularly from the individual investors, which is surprising," the central banker says about the switch from banks to succulent treasuries.
Institutional depositors are financial institutions, insurance companies, corporate bodies, provident/pension fund and mutual fund while an individual depositor means the person itself.
Even till the financial year 2022-2023, the country's commercial banks had the absolute dominance over the G-sec market as far as investment is concerned. A reversal started afterwards with institutional and individual depositors continuing to divert their funds from the banking system for investing in high-yielding treasury bills and bonds.
And the trend accelerated further in the recent months when the difference of rates of gains between banks and the G-sec market widened significantly, according to the officials and bankers.
As a matter of fact, they note, the deposit growth in banking industry remained almost stagnant--hovering in-between 9.0 per cent and 10.50 per cent, plummeting from as high as 17 per cent few years ago.
But the banks have not felt the liquidity crunch too heavy yet despite the growing diversion of the deposits to the G-sec market as lower credit demand from the private sector in the prevailing business climate offsets the deficiency.
Industrial hubs struggling to maintain production due to energy crisis while political instability and massive appreciation of the US dollar against the local currency further accentuate entrepreneurs' investment woes.
Government securities are risk-free investment instruments through which the government used to borrow funds from the banking system to make up for budget shortfalls.
According to the G-sec-related data of the Bangladesh Bank (BB), commercial banks altogether invested Tk 143.39 billion while institutional and individual investors contributed Tk 76.85 billion in FY'23.
The following FY'24, banks invested Tk 261.38 billion in purchasing treasury bills and bonds but the institutions and individuals poured in Tk 372.89 billion to tip the balance.
In the first two months of this fiscal year (FY'25) until August, institutions and individuals had invested Tk 51.48 billion while commercial lenders put Tk 6.38 billion in the risk-free securities market.
The cut-off yields on various treasury bills and bonds are hovering in- between 11.75 per cent and 13.0 per cent whereas the deposit rates in banks are ranging between 9.00 per cent and 10.50 per cent.
Managing Director and CEO of Mutual Trust Bank Limited (MTB) Syed Mahbubur Rahman says the fund diversion from the banks by a good number of depositors created some sort of liquidity pressure on the banking system.
But the banks have not felt the liquidity pinch too hard yet because of the lower demand for credits by the private sector under the current context of the macroeconomic situations, the experienced banker explains.
"If the funds from the institutional and individual depositors continue flowing into the G-sec and the business activities resume completely, liquidity will be a serious issue for the banks in the coming days," Mr Rahman predicts.
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