Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Fund funnelling from the central bank into commercial banks in Bangladesh through repo instrument hits a record high of over Tk 1.45 trillion in June, indicating their severe liquidity crunch.
Deposit growth remains slow amid higher non-performing loan (NPL) regime following past misrule in the banking sector while government bank borrowing also ballooned to make up for revenue deficit, bankers and money-market analysts say about the banks' desperate need for liquidity feeding.
They say the volume of commercial lenders' borrowing through repo window of the Bangladesh Bank (BB) continues ballooning to meet their local-currency obligations.
According to the latest data available with the BB, the country's scheduled banks altogether borrowed Tk 1.45 trillion from the banking regulator under the repo facility in June 2025.
Off the amount, around 75 per cent was taken using 14 days' maturity while remaining Tk 275 billion and Tk 91.05 billion came from 7-day maturity and overnight facility.
Under the repo-backed liquidity facility from the central bank, the figures of borrowed funds were Tk 1.33 tillion, Tk 940 billion and Tk 838 billion in May, April and March last, the data showed.
The commercial lenders needing short-term liquidity are largely bent on 14-day-tenure repurchase instrument of the BB and keep banking on it as much as possible. As a matter of fact, the volume of credits handed out through the liquidity-availing window continues surging.
But there are allegations by a number of bankers and BB officials that some of the commercial lenders frequently use such instruments to avail short-term funds but invest those in long-term government securities to gain more under the persisting economic sluggishness, which plays a significant role in the squeezing of yields on treasury bills and bonds.
Seeking anonymity, a BB official says the rising use of the repo-backed funds indicates that majority of the commercial banks have been facing serious liquidity crunch in recent times.
The central banker says the deposit growth remains low in recent times because of trust deficit in the banking system after massive-scale loan-related irregularities got exposed following the July-August mass-uprising that toppled Sheikh Hasina's governing regime.
On the other hand, the BB official says, the volume of NPLs in banks keeps mounting to reach Tk 4.20 trillion, almost one-fourth of the entire loans worth Tk 17.13 trillion disbursed by the banks until March last.
"So, the banks have no other option but to rely heavily on central bank repo instrument to overcome the formal credit mismatch," the central banker adds.
He mentions that the government roughly borrowed some Tk 1.24 trillion from the banking system in the last fiscal year (FY'25). Of the borrowed funds, the government paid back over Tk 300 billion to the central bank in the form of meeting its previous liabilities.
According to the BB data, the deposit growth stood at 8.21 per cent by April last. It was more than 12 per cent even three years ago.
On condition of anonymity, the treasury head of a commercial bank said commercial banks normally use the short-term liquidity instrument of the BB to meet CRR (cash reserve ratio) requirement.
But the reality is different. The commercial lenders frequently use such instruments to avail short-term funds but invest those in long-term government securities to gain more under the persisting economic sluggishness, he told the FE.
Sharing statistics, the seasoned banker says the banks need to keep 4.0 per cent as CRR with the central bank, which is around Tk 750 billion. But the banks borrowed Tk 1.45 trillion in June last.
"It indicates how serious the liquidity crunch in banks is. If the BB stops giving repo facility for a couple of weeks, majority of the banks will collapse," he said
Under such circumstances, the treasury head said the banking regulator keeps squeezing repo facility following the lending condition set by the IMF (the International Monetary Fund), which is "unfortunate".
The regulator has already curtailed repo facility once a week from daily handouts. It also discarded 28-day repo and is about to scrap 14-day window from October next.
jubairfe1980@gmail.com