Rollback of 14-day repo deferred

Cash feeding into banks continues as the regulator decided to defer rollback of 14-day-tenure central-bank repo by minimum three months, to a much-needed respite to the commercial lenders from liquidity crunch.

The Bangladesh Bank (BB) earlier in April last decided to phase out the 14-day liquidity instrument from this July following an IMF lending condition requiring Bangladesh to stop banks' overdependence on repo facility.

The deferment of scraping the most-used liquidity instrument by commercial lenders from the central bank comes as the regulator has yet to complete the infrastructure to introduce intraday liquidity facility (ILF), which is essential to avert severe fund mismatch the banks may fall in with discontinuation of the facility.

Bankers have hailed the BB decision, saying that allowing only 7-day repo instrument without ILF will be a disaster-like situation for the banks. The banks will be able to absorb the possible fund-management pressure with the squeezing of 14-day repo facility if there is ILF.

The ILF is an instrument to funnel funds by the central bank into a bank for the duration of a business day against securities provided as collateral by the bank.

As the BB has decided to allow only the seven-day repo facility following a recommendation by the International Monetary Fund as part of its lending programme to stabilise the country's macroeconomic situation, it would create serious problems for banks in terms of fund settlements.

Under the facility, the regulator will provide the necessary credits to the banks having credit shortages in their accounts with the BB automatically soon after the deduction of the borrowed funds in the morning on the maturity date.

Once the banks' repo appeals are accepted in the evening, the ILF amount will automatically be deducted from their accounts.

Seeking anonymity, a BB official said they had decided to delay the phasing out of the facility as it would take time of at least three months to launch the ILF.

To introduce the intraday liquidity facility, the official said, the central bank needs to make core banking solution (CBS) ready and it will have to be synchronised with RTGS (Real Time Gross Settlement), financial- market infrastructure and banks' current accounts with the BB.

"It will take minimum three months to complete whole process. That's why we have decided to make the deferment," the central banker informed.

Deputy Managing Director and Head of Treasury and Financial Institutions at BRAC Bank Md Shaheen Iqbal appreciates the central bank's latest decision on the delay.

Talking to the FE, he notes that the central bank automatically deducts the borrowed repo amount in the morning on the maturity date from a bank's CRR account, but the latter gets repo funds again in the afternoon.

"Within this gap, banks would face fund settlement-related problems. If the central bank implements ILF, like in many other countries, that will help banks avoid such troubles and improve their liquidity-management capacity. The regulator will deduct the ILF funds once fresh repo is accepted," Mr. Iqbal adds.

The experienced banker also says the facility will not only give banks a breathing space but also help with government borrowing efficiently.

On condition of not quoting him by name, the treasury head of a commercial bank says 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.

"Banks are over-dependent on repo facility. They need to reduce their dependence on risk-free capital gains once the 14-day repo facility is phased out," says the experienced banker.

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 much more than the CRR requirement.

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 came to Tk 940 billion and Tk 838 billion in April and March last, the data showed.

The BB has already curtailed repo facility to once a week from daily delivery. It also discarded 28-day repo in April last.

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