Ownership pattern in government securities (G-sec) keeps changing with individual and institutional investors now dominating the market of high-stakes risk-free instruments, leaving banks a bit high and dry.
However, banks don't feel the pinch so hard for the switch of depositors as there has been suppressed demand for funds from businesses because of recent sluggish economic activity, sources have said.
The switch of sides by the investors is prompted by higher bets put on treasury bills and bonds by government exchequer for necessary fundraising.
Institutional depositors are financial institutions, insurance companies, corporate bodies, provident/pension fund and mutual fund while individual depositors mean 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 rate 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 pressure 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 the 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 Bangladesh Bank (BB), the country's central bank, 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 (FY'25) until August, institutions individuals had invested Tk 51.48 billion while commercial lenders put Tk 6.38 billion in the risk-free securities market.
Seeking anonymity, a BB 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 sure-fire non-competitive ones so that their bids don't go unaccepted.
The share of the non-competitive bids against the notified auction demand was less than 10 per cent in June 2023 from when the rates kept climbing fast. Now the share leapt over 20 per cent.
The central banker says they have been witnessing more participation of such investors particularly in the treasury bills where the rates are much higher than that offered by the commercial banks.
The rates on 91-day, 182-day and 364-day treasury bills stands at 11.45 per cent, 11.72 per cent and 11.88 per cent respectively, as on October 6 last, while deposit rates in most of the banks are hovering in-between 7.0 per cent and 10.50 per cent.
"That's why they (institutional and individual depositors) are more interested in treasury bills."
The official also says that 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.
Managing Director and Chief Executive Officer (CEO) of National Credit and Commerce (NCC) Bank M. Shamsul Arefin says the rates should be higher on the risky investment tools, lesser on the risk-free instruments. But the scenario is different in Bangladesh.
Baited by the higher bets, he adds, institutions and individuals have been diverting their funds from the banks into the treasuries which are risk-free instruments.
Although the rate on treasury bills and bonds keeps falling slightly, it is much higher than the rates offered by the banks. "Many depositors from the banking system diverted their funds to the G-sec market to gain more, which is expected," the top executive of the NCC Bank, a primary-dealer bank, told the FE.
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 pressure too heavy yet because of the lower demand for credits by the private sector under the current context of the macroeconomic situations, he said.
"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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