Election fuels bank borrowing

The government's borrowing from the banking system shot up in the last two months to meet its expenditure ahead of the national election scheduled next week.

The sudden rise in the bank borrowing has thrown some banks into further cash crisis, a trend they have been facing throughout 2018, according to bankers.

Bangladesh Bank data showed the government borrowed Tk 3,042 crore in November using treasury bills and bonds, and has set a target to take another Tk 5,050 crore in December, of which three-fourth have already been drawn.

The government borrowed Tk 1,373 crore in the July-October period in the current fiscal year.

Though the borrowing has been less than one-fourth of the full-fiscal year's target of Tk 42,029 crore, it is more than double from the total borrowing in 2017-18, when the government took loans amounting to Tk 5,666 crore from the banking sector against the planned Tk 28,203 crore.

In 2016-17, the government did not borrow any money from the banking system; rather it repaid Tk 18,029 crore to adjust past debts, according to the BB.

Cash withdrawal by candidates and many others ahead of the elections has already created a cash crunch for some banks, said M Kamal Hossain, managing director of Southeast Bank.

He said some banks that had failed to foresee that there would be a huge demand for cash ahead of the parliamentary polls were in cash crisis.

"The liquidity crunch may continue into February next year," Hossain said.

MA Halim Chowdhury, managing director of Pubali Bank, said some banks' liquidity base had deteriorated in recent months because of an increase in government borrowing.

The government had set a net borrowing target of Tk 2,050 crore from banks for December, but the target has been revised up, keeping an option to get another Tk 3,000 crore this month. "The revised target was unexpected for the banks that have been already facing cash crisis," said the treasury head of a private bank.

The situation has forced the cash-strapped banks to resort to the central bank.

Ten banks borrowed Tk 3,687 crore from Monday to Wednesday last week using repurchase agreement and the assured liquidity support facility to meet their instant liquidity demands.

The government's borrowing through sales of savings instruments is also on the rise, putting banks in a tight situation as the tools attract savers because of a much higher return than offered by banks' deposit products.

Between July and October, net sales of savings tools stood at Tk 17,829 crore, according to data from the Department of National Savings.

Some banks are offering interest rates as high as 7 to 9 percent on their several

fixed deposit products, backpedaling on the decision taken by the sponsors of private banks to keep the rate at 6 percent, said a banker.

The interest rate on national savings instrument ranges from 11.04 percent to 11.76 percent.