The pattern of money market changes as banks are largely bent on alternative liquidity options instead of interbank spot or the traditional call money market to meet their growing funding needs ahead of Eid-ul-Fitr, officials and bankers said.
Such visible changes in liquidity management of the commercial banks have put the call money market in a sorry state in terms of transactions, which are too little even in this peak season, according to them.
They also said banks having surplus liquidity seem to be not comfortable in lending overnight in the spot market to their needy peers because of the prevailing trust deficit amid a tightening monetary regime.
Instead of depending on the traditional call money market, the lenders are largely managing funds by using alternative options like repo-backed borrowing facility and assured liquidity support (ALS) of the central bank.
According to the Bangladesh Bank (BB) statistics, banks borrowed funds amounting to Tk 297.31 billion in the last nine business days up to March 25 (Tuesday) from the call money market with a daily average volume of Tk 33.0 billion.
In the previous pre-Eid season, the daily call money transactions were between Tk 90 billion and Tk 130 billion.
The commercial banks altogether borrowed Tk 645 billion on the first three repo window-opening dates of this month (March 5, 12, and 18). Of the total, some 76 per cent (Tk 489.47 billion) was borrowed using the 28-day facility.
ALS is another borrowing instrument that is being used largely by the primary dealer (PD) banks in recent days. Data shows a total of 24 such banks borrowed Tk 511.24 billion in the last nine days from the banking regulator with daily average volume of Tk 56.80 billion.
Interestingly, the use of costly borrowing (11.50 per cent) from the central bank by the commercial banks also showed a rising trend in recent days. In the last nine business days, banks borrowed Tk 43.40 billion using the standing liquidity facility (SLF).
Seeking anonymity, a BB official said the call money market is still not vibrant even after various regulatory moves probably because of the trust deficit in collateral-free lending.
"This is probably a short-term phenomenon. There are banks that have enough liquidity, but they feel comfort in depositing their funds in BB's standing deposit facility (SDF) instead of overnight lending," the official said.
"But things might change in the coming days once an elected government comes to power and eliminates business uncertainties. Banks will then be able to downsize the non-performing loan (NPL) buildup by intensifying cash recovery," the central banker added.
According to the BB data, the affluent banks deposited their un-invested fund equivalent to Tk 133.32 billion in SDF in the last four working days since March 20.
Managing Director and Chief Executive Officer of Mutual Trust Bank, a primary dealer bank, Syed Mahbubur Rahman said the operational board of each bank normally fixes the counterpart limit through which the banks lend their surplus funds to their selected peers.
"The boards of many banks recently squeezed the counterpart limits considering the current state of the banking industry due probably to the trust deficit, which could be a reason behind the banks' least focus on the call money market," the experienced banker told The Financial Express.
He also said the pattern of money market changed in recent days as banks now give more focus on investing in government securities and using the repo facility.
jubairfe1980@gmail.com
© 2025 - All Rights with The Financial Express
