Primary dealer banks' demand for assured liquidity support (ALS) from the central bank plummets largely for generous handouts of newly printed money by the Bangladesh Bank, sources said.
Officials and bankers have said the BB circulates the 'high-powered money' through government debt instruments as the government switches borrowing from the banking system, thus relieving stress on banks' liquidity.
Banks' aggregate liquidity inclusive of investments and deposits stands over Tk 15 trillion, as of last April account of the money market.
The ALS is a borrowing instrument for the primary dealers under which the PD banks can borrow money from the central bank to meet their emergency liquidity obligations.
As the BB had purchased majority of the government securities - treasury bills and treasury bonds-with its high-powered money through devolvement mechanism since early FY'23, the pressure on the liquidity coffers of the PD banks kept easing. And it dampens ALS demand, sources at the central bank said.
According to official statistics, the average per-day disbursement of ALS in July in the immediate-past financial year (FY'23) was Tk 40.35 billion, which came down to Tk 37.36 billion in the following month of August.
The volume of ALS continued to be on the downturn to reach Tk 17.60 billion in December 2022. In June 2023, the average daily ALS disbursement reached a rock-bottom Tk 9.89 billion, the BB data showed.
Seeking anonymity, a BB official said the ALS instrument was introduced for the PD banks who take part in the auction for government securities to support them with emergency liquidity to avert fund crisis while they were buying treasury bills and bonds.
Considering liquidity tightness in banking sector because of record purchase of US dollars from the central bank throughout the past fiscal amid forex dearth, the official said, the BB purchased majority of the government securities through 'devolvement' to ease liquidity stress in the banks.
"So, the PDs did not invest largely in T-bills and T-bonds. That's why the volume of ALS continues falling. PD banks mainly seek the support to maintain required CRR (cash reserve ratio) with the central bank," says the central banker.
Contacted, deputy managing director (DMD) and head of treasury of Meghna Bank Limited Md. Sadiqur Rahman said the PD banks used to avail the 90-day liquidity support with the REPO rate from the BB if they faced any pressure in the context of liquidity obligations.
As the BB keeps purchasing most of the T-bills and T-bonds that the government issued to meet budget-financing shortfalls, the pressure over the liquidity of the PD banks is not so high. "That's why the demand for ALS keeps falling," he adds.
DMD and CFO (chief financial officer) of AB Bank Limited K.M. Mohiuddin Ahmed says alongside generous devolvement activities, the liquidity situation of the banks keeps improving for the last several months.
In the ALS, the PDs can get 95 per cent of funds against T-bonds and 85 per cent against T-bills at the REPO rate of 6.50 per cent. On the other hand, they can get full volume of required funds from the central bank and interbank sources through the repo rate.
"These are the reasons behind gradual fall of ALS," he adds.
The net volume of 'devolvement' carried out by the BB stood at around Tk 800 billion in the FY'23, about Tk 510 billion higher from previous fiscal year of 2021-2022 when the figure was about Tk 290 billion.
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