A new liquidity-feeding derivative called AR or assured repo comes from the recently-introduced special bonds as a godsend for the banks in persistent liquidity crunch, analysts and bankers say.
Early last month, the government started issuing special government bonds worth Tk 260 billion, meant for settling accumulated arrears to independent power producers and fertiliser suppliers, which also bear multiple financial gains.
Against the special bond-holding, the government has launched the AR facility, which is completely different in nature from other liquidity instruments as the maximum tenure of the special credit support is 182 days unlike 28 days for other existing liquidity supports.
Like other sovereign securities, the government allows the special bondholders to get liquidity support from the Bangladesh Bank (BB) with more lucrative features.
To put more sweeteners on the special bonds, the authorities also excluded the yearly mark-to-market evaluation risk so that the banks do not shy away from holding such a special bond.
Seeking anonymity, a BB official has said the special bonds have become a blessing for the bondholders, especially for the banks facing liquidity crisis following continuation of BB's highly contractionary monetary measures to contain inflation.
As the maximum tenure of the liquidity instrument is 182 days, the bondholders have started taking credit support from the central bank with the bond receipts kept as collateral at the policy rate of 8.0 per cent. And the banks are now investing the funds in short-term government securities for higher gains.
For example, the cut-off yield on the 90-day treasury bills auctioned last Sunday was 11.35 per cent. "So, if the banks get the money at 8.0 per cent from the BB and invest in the short-term government securities, it is giving them lucrative financial returns," the central banker says about the bets on the bonds and treasuries.
On the other hand, the banks can use the receivables against the investment in the government securities as SLR component. "That's why the flow of liquidity supports against the special bondholding continues growing."
According to statistics with the central bank, the special bondholders have so far received liquidity supports amounting to over Tk 105 billion.
Talking to the FE writer, managing director and CEO of Dhaka Bank Emranul Huq said banks receive such liquidity support from the central bank at the policy rate of 8.0 per cent while the lending rate, meanwhile, rose to 12.50 per cent on the money market.
At the same time, the experienced banker notes, the banks, in most cases, made short-term investment in power and fertiliser sectors but a special bond is a long-term investment instrument.
"In short term, banks can easily roll over the money after a short period of time when it is mature. But here the investment will be blocked for 10 years," Mr Huq says about a demerit of the option.
Taking these matters into consideration, he feels, the government may include some special features in the liquidity-supporting instrument so that it does not affect the banks financially.
Managing director and CEO of Mutual Trust Bank (MTB) Syed Mahbubur Rahman is upbeat in narrating the multifaceted benefits of the new bond. He says the mark-to-market evaluation risk will not be counted for the special bond, which is another benefit.
"The most important part is that our investment in power and fertiliser was locked for months, which was a matter of serious concern for banks. And it is creating money especially at this moment when the liquidity situation is under tightness," he adds.
Seeking anonymity, the treasury head of a private commercial bank said the banks are now investing the liquidity-support spinoffs in the government securities which are more alluring for the higher rates.
"I hope the government will release such type of special bonds for other sectors, too, to give some sort of respite to the banks," the treasury official added.
The sources said fertiliser importers have arrears to the tune of Tk 120 billion while IPPs have payment backlog of Tk 140 billion. The bonds, a debt instrument, will be used as loan repayment to 40 banks on behalf of power producers and fertiliser suppliers.
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