Weak banks' liquidity ordeals seem over as well-off bankers yield

Liquidity-strapped banks' ordeals are set to be all over as well-off bankers finally decide in principle to lend to the weaklings, sources said, thanks to regulatory interventions.
Officials and bankers said that, under the bailout arrangement, top management of the lender banks would place applications seeking liquidity support by the troubled banks with the boards of the respective bank for the all-clear.
"We'll place the matter with our board soon and will act in accordance with the directive of the highest decision-making body," managing director and chief executive officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman told the FE following the breakthrough.
He said the Bangladesh Bank (BB) assured the bankers of repaying the funds within three days under the guarantee policy if the cash-hungry banks fail to pay back within the stipulated timeframe.
"It gives us a comfortable space," he added, now nonchalant following sovereign guarantee for repayment.
As the country's central bank decided not to use print money to feed the struggling banks, five cash-hungry commercial banks-National Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank-last week signed agreements with the banking regulator on obtaining its nod to playing guarantor for the banks in failure of repaying the credits borrowed from the banks having enough and to spare.
But the sovereign guarantee can't reassure fund-surplus commercial banks for lending to the have-nots in banking, causing serious concern to the lenders in need.
To resolve the crisis before it turns for the worse, the BB called a meeting Wednesday with the top executives of the compliant banks where the high-ups of the central bank explained the guarantee policy in detail.
In the meeting, chaired by BB governor Dr Ahsan H. Mansur, the bankers suggested the high-ups of the central bank to issue special bonds for supporting the troubled banks. But the governor balked, meeting sources said.
Seeking anonymity, a BB official who attended the meeting said they explained everything regarding the conditions and other aspects of the guarantee policy to the bank executives so that they don't have any confusion or reservation about the special dole-out recipe.
"We're hopeful that the problem that arose over the sovereign guarantee would be resolved soon," the central banker said.
A top executive of another private commercial bank, who preferred to remain anonymous, said they now feel comfortable in supporting the weak banks following interventions of the central bank.
"We wanted to give liquidity to the regulator helping them resolve the prevailing liquidity dearth in some banks but the central bank disagreed and asked us to support the struggling banks in line with the guarantee policy," he said.
The crisis-resolving meeting took place a day after chairman of National Bank Limited (NBL) Abdul Awal Mintoo in a media interview said the BB has to arrange liquidity support to the tune of at least Tk 10 billion for each of the weak banks if it is serious about keeping them in operation with depositors' trust restored.
Meanwhile, the deficit in the current accounts of nine troubled private commercial banks maintained with the central bank has ballooned over Tk 180 billion.
National Bank has a current-account deficit of over Tk 23.42 billion, First Security Islami Bank Tk 72.69 billion, Social Islami Bank Tk 33.94 billon, Union Bank Tk 22.09 billion, Commerce Bank Tk 3.80 billion, Global Islami Bank Tk 0.39 billion, Islami Bank Bangladesh Tk 22.01 billion, Padma Bank Tk 2.34 billion and ICB Islami Bank Tk 0.95 billion.
Five of them-National Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank -have obtained a central-bank guarantee to avail liquidity support from the interbank money market.
Earlier, the central bank had imposed nine conditions that provide, among others, that liquidity support will be maximum for one year on a three-month basis, interest rate will be fixed at 11 per cent equivalent to the existing level of special liquidity facility (SLF) rate in the agreements with the five commercial banks.
In case of a failure to repay by the crisis-hit banks, the liquidity- providing banks can create 90-day-tenure forced loans in the name of the borrowing banks.
The central bank will be empowered to deduct funds from the concerned banks' current accounts with the BB in case of failure to repay the loans on time, as per the agreement.
An additional 2.0-percent interest or profit will be imposed on the SLF rate if the loans are not repaid on time.
If the BB fails to recover funds from the borrowers' current accounts, it will recover cash by selling the banks' permanent assets, bonds and other securities.

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