Banks' reliance on central bank borrowing hits record high

Bangladesh's commercial banks are increasingly leaning on the central bank to stay afloat, with borrowing through the repo window hitting a record Tk 1.33 trillion in May 2025, signaling a worsening liquidity crunch in the country's banking system.

The growing reliance on Bangladesh Bank's short-term liquidity support comes amid sluggish deposit growth, mounting non-performing loans (NPLs), and a crisis of confidence in the banking sector following recent political upheaval and revelations of financial irregularities.

Bankers and analysts warn that this growing dependency reflects structural fragility, with some lenders even misusing the liquidity window to invest in long-term securities for higher returns.

As the deposit growth remains low amid higher non-performing loans (NPLs) regime in the banking sector, the volume of commercial lenders' borrowing using repo instrument from the Bangladesh Bank (BB) continues ballooning to meet their local-currency obligations, according to the bankers and money-market analysts.

Latest data available with the BB reveal that the country's scheduled banks altogether borrowed Tk 1.33 trillion from the banking regulator under the repo facility in May 2025.

Of the amount, around 84 per cent was taken using 14-day maturity while the remaining Tk 153 billion and Tk 54.19 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 940 billion and Tk 838 billion in 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 bonds.

Seeking anonymity, a BB official said 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 said the deposit growth remains low in recent times because of trust deficit over the banking system after massive scale of loan-related irregularities got exposed following July-August mass-uprising that toppled Sheikh Hasina's governing regime.

On the other hand, the BB official said, the volume of NPL in banks keeps mounting to reach Tk 4.20 trillion, which was almost one-fourth of the entire loans worth Tk 17.42 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 added.

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 not disclosing identity, 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 said.

Sharing statistics, the seasoned banker said, the banks need to keep 4.0 per cent as CRR with the central bank, which is around Tk 750 billion.

"But the commercial banks borrowed Tk 1.33 trillion in May last. It indicates how serious the liquidity crunch in banks. 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 condition of IMF (International Monetary Fund), which is unfortunate.

The BB has already curtailed repo facility once a week from daily. It also discarded 28-day repo facility and it is about to scrap 14-day facility from next month.

jubairfe1980@gmail.com