Lack of lenders in Eid call money market
Lack of lenders in the overnight call money market is pushing banks to go for high-cost borrowing from the central bank to meet their additional needs for cash ahead of Eid-ul-Fitr.
Injection of funds into the market before Eid is a common phenomenon, but the situation of this time is slightly different than other time, said Md Arfan Ali, managing director of Bank Asia.
“The banking sector has been facing a liquidity crunch for months. And the Eid withdrawal pressure has deepened the crisis,” he added.
Cash-strapped banks borrowed Tk 3,000 crore from the Bangladesh Bank yesterday through the repurchase agreement (repo) and assured liquidity support facility (ALSF) that cost much higher than the call money.
Borrowing through repo and ALSF costs banks 6 percent in interest rate when the interest rate in the call money market hovers between 4.5 percent and 4.6 percent only.
Repo is a short-term fund that the central bank extends to banks in case of capital shortfall, while primary dealer banks, which are dedicated to lending to the government, are allowed to get funds through the ALSF.
The central bank also provided Tk 2,300 crore on May 30 to mitigate the cash crunch faced by banks.
To ease the situation, banks will have to give more efforts in their recovery as the ongoing cash crunch has mainly stemmed from rising default loans, according to Ali.
“The high default loans have eroded the lending capacity of banks. If the ongoing situation continues, it will be difficult for banks to support the GDP growth,” Ali said.
Meanwhile, transactions in the interbank call money market, which allows banks and non-banks to borrow and lend for a short period, also shot up in the last few days.
But, the weighted average interest rate in the call money market is still under control as the BB has repeatedly instructed lenders verbally not to hike the rate. It stood at 4.53 percent to 4.59 percent.
“The call money market is under control, which is a positive thing for the banking sector,” said Faruq Mainuddin Ahmed, managing director of Trust Bank.
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