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Inter-bank borrowing picks up ahead of Eid

Mehedi Hasan
09 Apr 2023 20:20:16 | Update: 10 Apr 2023 08:03:02
Inter-bank borrowing picks up ahead of Eid
— UNB File Photo

The inter-bank short term borrowing has gone up in the recent times, mainly due to the high amount of cash withdrawal ahead of Eid-ul-Fitr – the biggest religious festival of Muslim community.

Banks borrowed Tk 8,213 crore through the overnight call money market on Sunday, up from Tk 7,057 crore in Thursday – the previous working day, show central bank data. This figure was Tk 6,608 crore through the call money market last Wednesday.

The highest overnight call money rate reached 7.50 per cent on Sunday, which remained over 7 per cent since January this year. On January 5, the highest overnight call money rate was at 7.25 per cent.

Meanwhile, the inter-bank lending rate through short notice stood between 6 per cent and 8.20 per cent on Sunday. Ninety-one days and 182 days tenure interbank lending rate stood at 9 per cent, while the highest lending rate to customers is 9 per cent.

Industry insiders say the market has been very tight since the post pandemic period, but it intensified now due to the forex crisis. The interbank call money rate remained high in the last two months due to elevated business activities ahead of Eid-ul-Fitr.

The current pressure on the foreign exchange market and rising business activities ahead of the Eid are the key reasons for soaring inter-bank borrowing, said Dhaka Bank Managing Director and Chief Executive Officer Emranul Huq.

Banks were sitting on cash during the pandemic, but now have been facing a shortage of cash, sending the call money rate to a new high, he added.

Most of the banks are now borrowing funds from the central bank to meet their liquidity shortage.

Last Thursday, 20 banks and one financial institution borrowed at Tk 5,733.46 crore under repo, liquidity support facility and Islamic banks liquidity facility (IBLF).

Among them, eight banks and one financial institution borrowed at Tk 2,527 crore under 7 days tenure repo facility; six banks borrowed at Tk 2,610.75 crore under three days tenure liquidity support facility and three banks borrowed Tk 595.00 crore as 14 days tenure Islamic Banks liquidity facility.

The interest rate of 7-day tenure repo is 6.10 per cent, and for 3-day tenure liquidity support facility it is 6 per cent per annum. The range of expected Profit Rate (EPR) for 14 days tenure Islamic Banks Liquidity Facility is 6 per cent to 7.00 per cent.

A central bank senior official said, “We are continuously injecting fresh funds into the market, aiming to keep the money market stable ahead of the Eid festival. Normally, short term borrowing gets accelerated before the big festivals, because the demand for cash increases.”

Private bank officials pointed out that Pohela Boishakh will be celebrated on 14 April, which is another reason behind the recent pressure of cash withdrawal.