Banking sector recovers from liquidity crisis

Country's banking sector has largely recovered from the liquidity crisis as the central bank through repurchase agreement (repo) is infusing sufficient amount of fund in the money market every day. The fund the central bank infused would be five times higher than the fund it had withdrawn by hiking the cash reserve ratio (CRR) of the banks, a senior official of Bangladesh Bank (BB) told BSS. He said stabilisation of the money market helps the banking sector to give some positive indications in terms of reduction of the loan- deposit-ratio and call money rate at the end of the third quarter of the current fiscal. Despite some banks are still facing some difficulty, he said the banks can cope with the situation by using the foreign currency reserve, as country's forex reserve also increased moderately in recent times. Responding to the media reports on the liquidity crisis, the BB official said it's not true that the enhancement of the CRR caused the liquidity crisis. He said the high demand for Repo from banks has declined and it proves that liquidity crisis is now declining. Preferring anonymity, the official said the liquidity crisis was basically resulted from inefficiency in fund management, having no reserve for crisis period, and lack of performance in management of liability over assets. The official also discarded the report that the country is now suffering from imbalance in foreign currency transaction. He said in the first eight months (July-February) of the current fiscal country's total import was to the tune of around US$ 22 billion. At the same time country's total export was worth US$ 14 billion and the remittance flow in the country was US$ 7.5 billion. So, total shortage of foreign exchange transaction was about US$ 0.5 billion. Moreover, he said the central bank gives one billion dollar overdraft support to the commercial banks. In the above circumstances, the official said, BB can easily manage the shortage of foreign currency transaction from its own reserve. Former BB governor Dr Faras Uddin said, illegal business of the commercial banks in the capital market was mainly responsible for the liquidity crisis. "I perceive that the crisis is now over", he said adding foreign exchange reserve is now in a very good position and export and remittance are on rise as well. So, the central bank can easily deal with any shortage of foreign exchange at this stage, he observed. Another former central bank governor Dr Salehuddin Ahmed also observed that the overall liquidity crisis of both local and foreign currency is not in a dire situation. Commercial banks have already collected huge deposits giving higher rate of interest. Besides, the central bank regularly giving them support. In such a situation, there is very least possibility to have any liquidity crisis in the market, he observed.