Interbank money transactions make resounding rebound with rapid rise

Interbank short-term lending and borrowing on the call-money market is making a resounding rebound, with the September turnover recording a 26.6-percent month-on-month rise to Tk 1.47 trillion.

Bankers and analysts say the turnaround is taking place on the back of increasing liquidity on the money market-a development that is also easing the exigency of state cash feeding to cash-strapped banks.

The sharp rise indicates that interbank transactions have expanded, thus reducing the banks' reliance on borrowing from the central bank or Bangladesh Bank.

Of the total call-money transactions, 87.41 per cent were overnight deals reflecting the dominance of short-term liquidity adjustments among banks.

The turnover on the interbank repo market, another avenue for banks' transactions, stood at Tk 541.31 billion in September, marking a steep rise of 113.75 per cent over the previous month.

These two key interbank segments-call-money-and interbank-repo markets-serve as crucial channels through which banks borrow funds to meet short-term liquidity requirements and manage obligations against deposits maintained with the central bank as CRR or Cash Reserve Ratio.

In tune with the development, borrowing from the Bangladesh Bank declined in September as banks increasingly turned to market-based funding sources.

The turnover of the central bank's repo facility stood at Tk 995.68 billion, down 8.95 per cent from the previous month.

Central bankers say the recent developments on the money market align with the central bank's objective to encourage bank-to-bank transactions rather than dependence on central bank funding.

"We view the September money-market developments as positive and in line with our targets," a central banker told The Financial Express.

The weighted average interest rate on overnight borrowings ranged between 9.98 per cent and 10.14 per cent, averaging 10.04 per cent.

Borrowing from the central bank, by contrast, generally costs around 10 per cent.

Bankers see the paradigm shift as a healthy sign for market deepening.

"This is raising our market depth," says Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank (MTB), a leading private commercial bank.

He also says the increase in interbank activity reflects ample liquidity with some banks.

"Many banks are also buying dollars by selling local currency," he told the FE about the change of fortunes of the bankers.

Mr Rahman terms the rise significant as the central bank is set to phase out the window of borrowing through Assured Liquidity Support (ALS) mechanism from December next.

jasimharoon@yahoo.com