Banks face liquidity pressure before polls

The country's money market is now facing liquidity pressure following higher withdrawal of cash from the banks ahead of the national polls, bankers said.
Some cash-hungry banks have also availed liquidity facilities from the central bank in the form of repo and special repo to meet their growing demand for money, they added.
The weighted average call money rate rose to 4.50 per cent on Sunday from 4.08 per cent as on December 13, according to the central bank's latest statistics. The rate was 3.72 per cent a month back.
"Cash money withdrawal from the banks ahead of the election has created an extra pressure on the money market," Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), told the FE on Tuesday.
Mr Rahman, also managing director and chief executive officer of Dhaka Bank Limited, said such pressure may continue until distribution of deposit properly.
He also said the bond market should be developed to facilitate the ongoing industrialisation process of the country. "This will, indeed, address liquidity pressure to a great extent."
A total of 1,848 candidates are now contesting the December 30 polls across the country, according to the Bangladesh Election Commission.
As per electoral rules, each candidate is allowed to expend maximum Tk 2.5 million but not more than Tk 10 for each voter.
After four years, a few number of banks received special repo facility worth Tk 3.04 billion with paying 9.0 per cent interest from Bangladesh Bank (BB) on December 17 to meet their liquidity requirements.
Earlier on July 31 in 2015, a bank received Tk 300 million as special repo at 10.25 per cent from the central bank.
Besides, selling of US dollar directly by the central bank to the commercial banks has also pushed up pressure on the money market in the recent days, they explained.
More than Tk 91.96 billion entered the BB's vault in exchange for US$1097 million sold by the central bank to the banks during the period from July 01 to December 24 this year, according to a BB official.
The central bank has resumed offering such support to the banks in recent months by selling the US currency directly to keep the foreign exchange market stable.
As part of the move, the BB sold $20 million directly to two state-owned commercial banks (SoCBs) on Monday to meet the growing demand for the greenback in the market.
The central bank also sold $40 million to the banks last week on the same grounds.
The government's higher bank borrowing ahead of the election has also pushed up pressure partially on the market, according to the market operators.
"Thanks to the central bank for receiving a substantial amount of money from auctions on both treasury bills and bonds through devolving on the BB," a senior treasury official of a leading private commercial bank told the FE.
However, the government has already revised its auction calendar keeping an option for borrowing Tk 30 billion more in December for financing the budget deficit ahead of the polls.
Under the revised calendar, net borrowing from the banking system is set to reach Tk 50.50 billion by the end of this month compared with Tk 20.50 billion earlier.
"The government is set to borrow Tk 30 billion more through issuing 14-day treasury bills (T-bills)," a senior official familiar with the government debt-management activities told the FE.
The official also said the government borrowed Tk 15 billion through issuing 14-day T-bills on December 17 and the rest of the amount will be borrowed on December 31.
"Short-term borrowing will not affect the government's aggregate borrowing from the banking system," the official explained.
Talking to the FE, a senior BB official said: "It's a temporary phenomenon that would be stable shortly after the polls."

[email protected]