Banks take Tk 80b special bonds so far

Commercial banks have so far received Tk 80 billion worth of newly introduced special government bonds meant for settling accumulated arrears to independent power producers and fertiliser suppliers that also bear multiple financial gains, officials said.
The government early this month made the announcement of issuing special bonds equivalent to Tk 260 billion for clearing accumulated arrears in the power and fertiliser sectors-a measure seen as contrary to inflation-control monetary policy.
Such fresh and risk-free investment instrument comes as a blessing in disguise for the banks whose credits got stuck up for months at this time when the country's banking industry is passing through major liquidity crunch.
According to statistics of the Bangladesh Bank (BB), the central bank that facilitates trading in government securities, the commercial banks received special bonds worth around Tk 80 billion in the last several days.
Seeking anonymity, a BB official said the government liabilities to pay off bank debts against power and fertiliser subsidies keep rising, hurting the commercial lenders badly.
To solve the problem, according to the official, the government issued special bonds worth Tk 260 billion for the banks to clear unpaid dues.
"Now, banks are coming to get such bonds which will give them a breathing space in this critical period of time," says the official.
According to the BB sources, availing government securities will give three major benefits for the banks. Banks can get interest at the repo rate against the purchased bonds. Simultaneously, the bonds can be used to show as SLR and CRR while it also can be used to show as security against availing liquidity support from the central bank, if necessary.
The sources said fertiliser importers have arrears of Tk 120 billion while IPPs have payment backlog of Tk 140 billion. The bonds, a debt instrument, will be used as loan repayments to 40 banks on behalf of power producers and fertiliser suppliers.
The central banker also informed that the BB launched special liquidity support called assured repo (AR) against the special bonds.
But economists see the mechanism as a quick-fix cure and urge the government to bring necessary reforms in the operations of the public entities concerned to avoid recurrence of such ailment.
Talking to the FE, former lead economist of World Bank's Dhaka office Dr Zahid Hussain termed the issuance of special bonds to pay off bank debts against power and fertiliser subsidies as a temporary solution.
He predicts that the same problem would arise again in the days to come as the government hasn't initiated necessary reforms in the state-owned enterprises yet to make them commercially and economically viable.
"Ultimately, it is the BB that is financing. I don't know how long the government will solve such problem injecting high-powered money into the economy, which is contrary to the central bank's ongoing inflation-containing measures," says the noted economist.

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