Quick-gain 91-day treasury bills become hotcakes now as banks seem inclined to invest in short-term securities under a cautious banking approach as they do pre-election risk calculations.
Sources say the switch is also prompted by a discovery that these shorter-duration government securities possessed the lowest volume of 'high-powered money' or print money circulated in the economy by way of government borrowing from the central bank.
Officials and market players have said the primary dealer banks through which the banks purchase risk-free investment instruments through auctions arranged by the Bangladesh Bank (BB) are less interested to invest in mid-term and long-term government securities mainly to avoid the macroeconomic stress in this election year.
"Available gains of interest from investing in the short government securities are another reason why banks investment in the 91-day T-bills," says one of the sources.
As a result, according to them, the banks having enjoyed liquidity buildup in recent times because of lower demand for credits from the private sector are putting their funds, as much as they can, into the short-term public securities, especially in the window of 91-day T-bills.
Statistics available with the country's central bank show the government had borrowed Tk 643.51 billion through issuing 91-day T-bills since January 2023 till July.
But the share of the print money injected by the central bank through devolvement mechanism was Tk 166 billion during this period, which accounts for 26 per cent of the total requirements, while the average injection of newly circulated money in all the government securities is 40 per cent.
Seeking anonymity, a BB official said the PDs are more interested in short-term T-bills. That's why, they offer lower rate in the auctions so that their bids do not go unaccepted.
"The banks seem to be very cautious in investing in mid-and long-term government securities because this is an election year. So, the banks do not want to investment in longer terms," the official adds.
Also on anonymity, the chief executive officer (CEO) and managing director of a private commercial bank said the demand for credits by the private sector plummeted in recent times due to factors like import restrictions, rising costs of imports, volatility on global and domestic macroeconomic fronts, and "looming election-related instability".
And the banks are also very cautious in lending in this election year. "So, investing in risk-free government securities is a good option for the banks. This is probably a reason."
The BB data show private-sector-credit growth was 14.07 per cent in August last year. Since then, it had continued shrinking to reach 10.57 per cent in June 2023.
Contacted, deputy managing director (DMD) and head of treasury of Meghna Bank Limited Md. Sadiqur Rahman said the PDs are encouraging more to invest in short-term instruments like 91-day treasury bills.
"If you analyse the data, you will see maximum of the investment goes into the short-term T-bills, which is more profitable for the banks," he says about the lure of government-borrowing tools.
He said the rate in the three-month-long T-bills is 7.40 per cent. And the PDs are guaranteed to get 85 per cent of the funds against 91-day T-bills in the form of assured liquidity support (ALS) at the REPO rate of 6.50 per cent.
"For example, if any PD invests Tk 10 billion in short-term T-bills at 7.40 per cent, they can immediately get maximum Tk 8.50 billion from the BB through ALS instrument at repo rate of 6.50 per cent. It means there is a benefit of 90 basis points of rate."
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