The government continues to borrow from scheduled banks and repay the central bank, while the sector struggles to navigate a persisting liquidity crisis amid sluggish private sector credit growth.
This in turn is leading to shrinking funds availability at banks, needed to provide loans for the private sector. Economists too believe that when the government increases borrowing from scheduled banks, it directly impacts the country’s private sector credit growth.
The government borrowed Tk 29,353 crore from scheduled banks in the July to January 25 period of FY24, and in the same timeframe, it repaid Tk 31,737crore of the loans it took from the central bank, according to central bank sources.
In the first seven months of FY23, the government – instead of borrowing from the country’s scheduled banks – had repaid Tk 15,867 crore in loans. The government had borrowed Tk 45,165 crore from the central bank during the same period.
According to central bank data, the government’s net credit from the banking system was negative Tk 2,384 crore in the first seven months of FY24, compared to Tk 29,298 crore in the same timeframe last year.
These figures show that the trend has continued in the current fiscal year.
There has been some criticism over the government’s heavy reliance on borrowing from the Bangladesh Bank in recent times. As a result, the government is seeking loans from the scheduled banks.
Economists say the upward trend in scheduled bank borrowing by the government is having a direct impact on private sector credit growth, as evident by a significant decline of this indicator.
Moreover, the Bangladesh Bank reduced its private sector credit growth target to 10 per cent in June FY24, from 11 per cent set earlier.
On the issue, Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur said, “The government has stopped borrowing from the central bank, instead of repaying to the regulator.”
“The government has increased borrowing from scheduled banks in the current FY, compared to the same period of previous year. On the other hand, banks are spending their excess liquidity on treasury bills and bonds to ensure healthy profits. So, bank managements are also interested in loaning money to the government.”
On condition of anonymity, senior central bank officials told The Business Post that bank managements also consider investing in a secure place, because the classified loan is a big problem for the industry.
Many influential people took loans from the banks and did not repay them. As a result, the banks are suffering a liquidity crisis. On the other hand, the government is giving a good profit in treasury bills and bonds.
That is why these banks also invested their excess liquidity in treasury bills and bonds.
Eminent economist AB Mirza Azizul Islam said, “The government has been suffering from a revenue deficit for years. The revenue deficit increased steadily. As a result, the government borrowed from banks to meet the revenue deficit in the budget.
“The revenue problem cannot be fixed overnight, so we need a proper plan.”
Preferring to be anonymous, managing directors of several banks mentioned that deposits are a liability to the banks. These scheduled banks are always concerned about making tidy profits, and the government treasury bills and bonds are the secured option for bankers.
