Bangladesh Bank has continued providing liquidity support to cash-strapped commercial and Shariah-based Islamic banks to help them meet the demand for liquidity.
Commercial banks are getting liquidity support through repo while the regulator is arranging special liquidity support for Shariah-based Islamic banks.
Almost every working day in November, the central bank provided liquidity support to banks. When banks face liquidity crisis, they seek liquidity support from the central bank. However, the banks also seek support from other banks in call money.
The regulator supported banks with Tk 23,941 crore on November 22, the highest liquidity support last month. Before that the amount was Tk 22,282 crore on November 8.
According to the central bank data, these banks seek liquidity facility from the central bank through repo and special liquidity support. On average, the amount is Tk 15,000 crore to Tk 16,000 crore.
Currently, the repo rate is 7.75 per cent fixed by the regulator. As per the monetary policy, the central bank is trying to make money expensive.
On condition of anonymity, a senior official of the Bangladesh Bank said that banks usually have to meet many criteria to get liquidity support from the central bank. As a result, many banks that can't get facility from the Bangladesh Bank go to call money.
The call money interest rate reached 8.57 per cent on November 5, which was the highest rate in recent times. Banks took Tk 4,438.05 crore in the call money on this day.
Talking to The Business Post, Ahsan H Mansur, Executive Director of Policy Research Institute of Bangladesh (PRI) said, “These banks are continuously being facilitated by the Bangladesh Bank, which fuels inflation as well.”
“If liquidity support is provided for a certain time, then it's normal for the economy. But the problem is that the regulator is continuously supporting these banks, which are failing to submit Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) to the regulator,” he added.
The economist further said, “Liquidity support for these banks for 7 days, but if the regulator continuously facilitates after 7 days, then it's creating a new money expansion and boosting the money flow that pushes up inflation.”.
“Five Islami banks are getting support from the central bank. Irregularities happened in Islami Bank as well, influencing the people to take loan from the bank, but they did not repay. As a result, the bank is facing liquidity crisis and fails to submit SLR and CRR to the regulator,” he noted.
According to the Bangladesh Bank data, five Islami Shariah-based banks are still suffering liquidity crisis. These are Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank and Global Islami Bank.
The data showed that at the end of September, the liquidity deficit of Islami Bank Bangladesh was Tk 658 crore, Social Islami Bank Tk 1,590 crore, First Security Islami Bank Tk 826 crore, Union Bank Tk 483 crore and Global Islami Bank Tk 465 crore.