State banks prime lenders in call money market

A formidable cash position has made the state-owned commercial banks prime lenders in the call money market regardless of how low the interest rate is.

On the other hand, the private banks have become major borrowers in this market, cashing in on the sliding interest rate that dropped to as low as 1.25 percent last Wednesday.

For instance, last Wednesday, five state banks lent Tk 2,628 crore out of Tk 5,892 crore that traded in the call money market, according to data from the central bank. The state banks did not borrow at all.

The private banks borrowed Tk 3,135 crore but they were also the major lenders, accounting for over 43 percent of Wednesday's total transactions.

The non-bank financial institutions, which are the traditional borrowers in the call money market, took loans of Tk 2,641 crore, which is about 45 percent of the total transactions.

“We are running short of borrowers. We are trying to earn some profits by lending to the overnight money market,” said a treasury official of Sonali Bank. Sonali lent about Tk 300 crore on Wednesday, while Rupali and Agrani, two other state banks, lent Tk 850 crore and Tk 636 crore respectively in the call market.

The official said Sonali lent Tk 1,045 crore a week earlier.The state banks' loan-deposit ratio hovers around 50 percent, meaning that the bank lends Tk 50 out of every Tk 100 deposit. After maintaining cash reserve requirement and statutory liquidity ratio, the bank can lend Tk 80. So, Tk 30 remains idle out of every Tk 100 deposit with the bank. The call-money market is a short-term money market, which allows financial institutions to borrow and lend money at interbank rates.

It is an integral part of the money market, where the day-to-day surplus funds, mostly of banks, are traded.

The rate at which the banks and non-bank financial institutes lend and borrow dropped to as low as 1.25 percent for banks and 2.75 percent for NBFIs. The highest rate was 4 percent for banks and 4.5 percent for NBFIs.

“We borrowed money from the call money market just to cover the temporary mismatches in funds,” said Selim RF Hussain, managing director of Brac Bank.

Last Wednesday, Brac borrowed Tk 607 crore, the highest. A week earlier it borrowed Tk 923 crore.

Hussain said their borrowing will go down further this week, mainly due to rebalancing of the bank's liabilities.

Banks also borrow from this money market to meet the CRR and SLR as stipulated by the BB and often to meet sudden demand for money arising out of large outflows.

After Brac, City was the top borrower with Tk 480 crore last Wednesday, followed by AB Bank at Tk 394 crore, Trust Bank Tk 357 crore and Dhaka Bank Tk 321 crore.