Promised support eludes liquidity-hungry banks

Liquidity-starved five commercial banks have yet to get any positive response in feeding promised funds from interbank sources even after securing guarantee from the central bank, officials and bankers said.

The cash-hungry five - National Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank - recently signed agreements with the Bangladesh Bank on obtaining its nod to playing guarantor for the banks in failure of repaying the credits borrowed from the banks having surplus liquidity.

But the fact remains that none of the banks has received a single penny from the compliant commercial lenders which do not find lending to the problem banks sustainable for their banking despite the guarantee by the regulator.

Seeking anonymity, a BB official concerned said the banks having excess funds are yet to feel encouraged to lend to the five weaklings. As a matter of fact, no transaction has taken place yet under the guarantee mechanism.

Quoting a top executive of a strong bank, the central banker said the bank feared that anyone would raise questions over the decision to give credits to the banks having poor creditworthiness, which would downgrade the bank's rating.

"So, they try to avoid such transactions."

The official said the five banks with the help of the central bank very recently managed to convince management of a few state-owned commercial banks but the effort went in vain when the government cancelled the contractual jobs of the top management of the public banks.

"We're facing difficulties to run our bank as no banks have yet responded positively to provide liquidity support to us," Md. Touhidul Alam Khan, managing director (MD) and chief executive officer (CEO) of National Bank, told the FE in reply to a query.

He also said his bank had already approached more than 15 scheduled banks for liquidity bailout even after obtaining a guarantee from the Bangladesh Bank last Thursday.

"We've already received some applications seeking liquidity support from different cash-hungry banks in the last couple of days," a senior executive of a leading private commercial bank told the FE while replying to a query regarding liquidity support.

The private banker also said they would place the applications with their board-of-directors meeting for directives in this regard.

"We'll act in line with our board decision."

Talking to the FE, another private banker said: "We're giving top priority to government securities for investment of our excess liquidity."

Like the National Bank, the other four banks - First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank - have obtained similar guarantees from the central bank on the same grounds.

The central bank is now assessing liquidity requirements of two other banks -Islami Bank and Exim Bank -considering their overall financial health.

Meanwhile, the BB has imposed nine conditions that include that liquidity support will be maximum for one year on a three-month basis, interest rate will be fixed at 10.50 per cent equivalent to the existing level of special liquidity facility (SLF) rate in the agreements with the five commercial banks.

In case of a failure to repay by the crisis-hit banks, the liquidity-providing banks can create 90 days' tenure of forced loans in the name of the borrowing banks.

The central bank will be empowered to deduct funds from the concerned banks' current accounts with the BB in case of failure to repay the loans on time, as per the agreement.

An additional 2.0-percent interest or profit will be imposed on the SLF rate if the loans are not repaid on time, the agreement says.

If the BB fails to recover funds from the borrowers' current accounts, it will recover cash by selling the bank's permanent assets, bonds and other securities.

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