Liquidity crisis brings cheer to state banks

The ongoing liquidity crisis, which has become a bane for private banks and non-bank financial institutions, is turning out to be a boon for state lenders, which are flush with funds.

To cash in on the situation, state banks are lending to private banks on a short-term basis for 8 to 10 percent interest -- a safe return that no bank could earn even a year ago.

“These loans will help us earn more, but such income is temporary,” said Mohammad Shams-Ul Islam, managing director of Agrani Bank, which has lent out the highest among the state banks.

Between December last year and March this year, Agrani lent out Tk 4,000 crore on a short-term basis for 9-10 percent interest.

As of December last year, Agrani's loan-deposit ratio stood at 57 percent and total deposits at Tk 54,000 crore.

Sonali Bank, the largest state lender in the country, lent out Tk 1,500 crore between December and March for an average interest of 9 percent.

As of December, its total deposits stood at Tk 1.07 lakh crore -- the highest. Its loan-deposit ratio was the lowest, at 39 percent.

It is a risk-free investment for state banks as there is no chance of the loans getting classified, said Shawkat Jahan Khan, chief financial officer of Rupali Bank, which has renewed its Tk 3,000 crore deposits parked with different private banks.

Rupali's loan-deposit ratio stood at 57 percent in December and total deposits at Tk 32,600 crore.

However, Janata Bank could not provide liquidity support to the market during the crisis period as the bank already has a high loan-deposit ratio of 67.5 percent, said a senior executive of the bank.

The bank declined borrowing proposals of Tk 2,700 crore made by 40 banks and financial institutions in February and March, according to a bank source. Its total deposits stood at Tk 62,700 crore as of December.

Though the lowering of cash reserve ratio to 5.5 percent from 6.5 percent on April 3 has eased some liquidity stress, the scarcity of funds will continue in the long run, said MA Halim Chowdhury, managing director of Pubali Bank.

The BB move poured in an additional Tk 10,000 crore to the banking system. As of January, the banking sector's total excess liquidity stood at Tk 77,700 crore, 43 percent of which were with the state banks.