Risk-free returns from investment in sovereign securities keep shrinking to the frustration of some commercial banks as economic activity also stays persistently sluggish, bankers say.
As the investment opportunities squeeze over the last several months because of prevailing economic slowdown after the July-August mass uprising, commercial banks made a beeline for using the window of high-yielding government treasuries to make handsome gains on stakes.
As a matter of fact, many of the banks bagged a good volume of operating profits by the end of 2024 riding on the high-yield treasury bills and bonds through which the government meets its major portion of domestic borrowings to meet budgetary shortfalls, according to the bankers and officials.
According to the statistics of Bangladesh Bank (BB), the cut-off yield for 91-day, 182-day and 364-day treasury bills was recorded 11.65 per cent, 11.90 per cent and 11.99 per cent respectively on December 08 last.
Since then, the cut-off yield for the three segments of such bills continued falling to reach now 11.29 per cent, 11.57 per cent and 11.74 per cent respectively, according to outcomes of Sunday's auction operated by the central bank.
Seeking anonymity, a BB official says banks have now been offering lower rates at the auction to get their bid accepted by the auction committee, leading to a slide in the yield on treasury bills.
As the government has decided to borrow funds worth not more than notified amount from the market due to lower funding requirement, the official says, the committee shuts the auction once the notified amount is met.
For an example, the central banker mentions, the government had scheduled to borrow Tk 35 billion for 91-day, Tk 21.34 for 182-day and Tk 20.41 billion for 364-day treasury bills through Sunday's auction.
"And the committee accepted bids within the amounts. I think the banks having good volume of funds amid lower credit demand by the entrepreneurs intentionally offer lower rates so that their bids are accepted," the official told The Financial Express. Speaking on condition of anonymity, the treasury head of a public commercial bank says the demand for formal credits by the private sector continues falling while banks have become very conservative in lending considering current macroeconomic situation. These factors largely prompted many banks to go for risk-free investment instruments like treasury bills to make some gains under such circumstances.
As a result, the supply rises significantly against the lower demand. "So, banks offer lower yield so as to get their bids accepted. That's why the yield is falling," the treasury head explains the riddle.
According to official data, private-sector-credit growth plummeted to 7.66 per cent in November 2024 from 10.09 per cent recorded a year ago.
The treasury head of another private commercial bank says there are many institutions like corporate which lost their trust to keep their funds in the banking system.
As the government treasury market is secure with comparatively better returns, he says, such investors keep switching their funds into the treasury bills and the government can get a good portion of their funds in WAR (weighted average rate).
On the other hand, there are banks having surplus funds but cannot lend due to capital adequacy-related issue. "So, they don't have lending options and they chose either government securities or BB's overnight deposit instrument SDF (standing deposit facility)," he adds.
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