Banking experts at a workshop in the capital on Tuesday called for reining in the overwhelming sales of national savings certificates (NSCs) in the country.
They also warned that the prevailing situation is likely to push up the lending rate of banks in the long-term, and also prohibit the government's wish to decrease it to single-digit.
Due to very strong sales of NSCs, the government's borrowing from the banking sector has decreased significantly in the last two years, which is a major problem for the banks in making future planning, the experts added.
Their views came at a workshop on treasury operations of banks, organised by Bangladesh Institute of Bank Management (BIBM).
"In recent times, the government has been using the NSCs as the major sources for borrowing even though the cost is too high," said BIBM Professor Nehal Ahmed, while presenting the keynote paper at the event.
"Due to the huge sales of NSCs, the government securities' auction was irregular and repayment was higher than the new issuance. As a result, their yield decreased significantly."
Prof Nehal also pointed out that since all the commercial banks are required to invest a portion of their deposit in the government securities in order to maintain SLR (statutory liquidity ratio), the effective cost of deposit will increase because of a declining yield of the government securities.
"The increased cost of deposit will eventually be shifted to the borrowers by increasing the lending rate, as the bank will add its spread with the cost of deposit in order to ensure the target profit," he also noted.
"The entire process will ultimately increase the lending rate and prohibit the government's desire to bring it to single-digit. Thus the increased lending rate will not only affect the credit growth, but will also hurt the general people by increasing product prices and thus fuel inflation."
"It is important for the policy-makers to consider the issue rationally and formulate appropriate policy in order to ensure single-digit lending rate for the overall economic development of the country," he added.
Speakers on the occasion also called for developing a better bond market in the country as an alternative to NSCs.
Noting that diversification of products has helped the development of bond market in other countries, they also called for introducing bonds that are suitable for Bangladeshi market.
"Especially treasury bonds have high potentials of reaching a wide segment of the population. However, the number of treasury bond tickets need to be increased," said Md. Yasin Ali, Supernumerary Professor at the BIBM.
Opining that (soaring sale of) savings certificates has 'distorted' the whole market, he also suggested that there should be a cap on the total amount that can be invested by a single family through NSCs.
The BIBM workshop also took note of the significant depreciation of BDT in 2017 because of the high demand of US Dollar.
"As the market is experiencing crisis of USD, the banks should consider their forex position and estimate the payment obligation while opening LCs in order to avoid unfavourable situation in the forex market," according to the BIBM study.
Speaking on the occasion, Deputy Governor of Bangladesh Bank (BB) Abu Hena Mohd.
Razee Hassan said in Bangladesh, treasury management function has grown significantly since the gradual easing of money market and foreign exchange controls by BB.
"The liberalisation of interest and exchange rates, and currency convertibility are the main reasons for establishment of treasury management units in the commercial banks."
"Considering the paramount importance of the treasury operations, BB has also issued a guideline to establish a separate treasury department," he added.
Speakers during the workshop also noted that in the recent times, short-term loan has seen more exponential growth than long-term loan.
"However, to increase the country's investment-GDP ratio, we need more growth in long-term loan," said BIBM Professor Barkat-e-Khuda.
Managing Director of Krishi Bank Limited Md. Ali Hossain Prodhania asked BB to consider (the option of) borrowing from the central bank.
"Back in 2007, Sonali Bank, Janata Bank and Agrani Bank borrowed US$ 100 million each in foreign currency from BB for 180 days, and all of them repaid it before maturity."
"I think such borrowing from the central bank may be considered again. It will save interest payments in terms of foreign currency, while the reserve can also be well maintained," he opined.