Due to the liquidity crisis in the banking sector, the average call money rate—the overnight interest at which a bank borrows from another— was 9.16 per cent on Sunday, the highest in 11 years.
The banks borrowed Tk 5,013.68 crore from the call money market on Sunday. Of the total, Tk 3,683.89 crore was borrowed overnight.
The central bank data showed that the call money interest has been increasing day by day.
Market insiders think that the interest rate has increased as banks have been facing liquidity crisis for a long time. As a result, they have been borrowing money from each other overnight. They also think that there are several reasons behind the liquidity crisis in the country’s banking sector.
Talking to The Business Post, on condition of anonymity, the managing director of a private bank said that several banks have failed to submit their cash reserve ratio (CRR) to the Bangladesh Bank.
“For this, these banks have to borrow money from the central bank and also from the other banks. Again, banks need repay money to their depositors. On the other hand, at the end of the year, additional money is needed to fix the management in the banks.”
Banks are continuously borrowing money from Bangladesh Bank (BB) through repo to tackle the liquidity crisis. Currently, the repo rate stands at 6.75 per cent. There are many banks that can't take loans from the regulator due to many restrictions, that time these banks go to the call money market and borrow the money at a high rate.
Ahsan H Mansur, Executive Director of Policy Research Institute of Bangladesh (PRI), told The Business Post, "The deposit growth of the banking sector is shrinking. As a result, this sector is affected and facing the liquidity crisis. Due to ongoing high inflation, people have been withdrawing their deposits from the banks.”
The eminent economist also said, “Five Shariah-based banks are suffering from liquidity crisis as well. The central bank has been supporting them since last year continuously.”
Through the call money market, the banks borrowed overnight Tk 2,891 crore, Tk 3,187 crore, Tk 3,389 crore, and Tk 2,487 crore on December 21, December 20, December 19 and December 18 at the interest rate of 9.14 per cent, 9.13 per cent, 9.10 per cent and 9.03 per cent respectively.
According to the central bank data, the banking sector is also suffering the excess liquidity crisis. At the end of October 2023, the excess liquidity crisis stood at Tk 1,58,431 crore which was Tk 1,63,521 crore at the end of the June quarter.
Emranul Haque, managing director and CEO of Dhaka Bank, told The Business Post that banks invest their excess liquidity in treasury bills for getting good returns and securing their money.
Banks usually borrow money from each other in three ways – call money loans for a day, short-notice loans for two to 14 days, and term loans for 90 to 180 days. Although the central bank has issued verbal instructions on call money rates, it has no say in the rates of short-notice and term loans.
