State banks seek liquidity support amid fund withdrawal by SoEs
State-run lenders yesterday approached both the central bank and the finance ministry to seek liquidity support as government agencies are withdrawing funds rapidly, a development that will handicap them ahead of implementing the government's massive stimulus packages.
They came up with the plea at a virtual meeting with the finance ministry. Managing directors of all state-run banks and non-bank financial institutions were present.
Md Ashadul Islam, senior secretary of the financial institutions division, chaired the virtual meeting. Bangladesh Bank Deputy Governor Ahmed Jamal was present.
The state-run lenders have been asked to play a leading role in materialising the packages by using their large branch network.
As of November, the country's 59 banks have 10,467 branches. Of the sum, four state-owned banks -- Sonali, Janata, Agrani and Rupali -- together account for 34 per cent of the branches and 56 per cent of the branches are located in the rural areas.
Both the government and the central bank have so far declared 18 stimulus packages worth Tk 95,619 crore to tackle the economic fallout.
The packages, which are equivalent to 3.5 per cent of the country's GDP, will be implemented under the supervision of the BB and the finance ministry.
The finance ministry asked the lenders to implement the stimulus packages in a quick manner with a view to pulling the economy out of the meltdown.
There are 68 state-run enterprises (SoEs) that have Tk 212,100 crore deposited in banks, and the state-run banks have been sitting on enough liquidity for long on the back of the bulk deposits.
But the liquidity base has started to contract as the government has been forced to meet its expenditure due to the ongoing economic fallout resulting from the coronavirus pandemic.
For instance, the Bangladesh Petroleum Corporation will withdraw Tk 2,000 crore from Sonali and Janata respectively within the next week.
The central bank, however, assured the lenders of required fund injection in the form of repurchase agreement to mitigate the impending liquidity crunch.
The meeting did not take any final decision, but the finance ministry gave a hint that the state banks would have to play a major role in implementing the stimulus packages, said Md Abdus Salam Azad, managing director of Janata Bank.
The ministry has asked the lenders to give an idea about the potential losses their business will face due to the ongoing fallout, he said.
Bangladesh Krishi Bank (BKB) will have to execute the stimulus package largely for the farm sector, said its managing director Md Ali Hossain Prodhania.
The central bank has formed a refinance scheme of Tk 5,000 crore for the small and medium enterprises of the farm sector, of which Tk 1,199 crore will have to be disbursed by BKB.
Besides, the bank will have to give out a major portion of loans to farmers at 4 per cent interest rate, he said.
"We are well prepared to do so. This will help protect the agriculture sector from the recession," Prodhania said.
The state lenders could lead the implementation of the stimulus packages by using the huge network, said Mohammad Shams-Ul Islam, managing director of Agrani Bank.
In a separate move, the central bank has divided proportionately for banks the stimulus package of Tk 30,000 crore earmarked for the industrial and services sectors.
A majority of banks now face a liquidity crunch in the wake of deposit withdrawal by clients, so they will try to disburse loans under the package.
The central bank has taken into account the outstanding amount of the respective bank's working capital until December in the industrial and service sectors while fixing the sum for them.
Banks will get an interest rate subsidy of 4.5 per cent for the disbursed loans under the package.
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