Banks borrowing at 12.5 pc interest to meet up crisis

Staff Correspondent: The liquidity crisis in the banking sector is increasing day by day. The interbank currency market is also becoming unstable. On Thursday, banks facing liquidity crisis borrowed at a record 12.5 percent interest rate in this market. This information is known from the report of Bangladesh Bank.
Some bankers say about the sudden increase in the interest rate of money, banks have to finalize their balance sheet at the end of the year. This increases the demand for cash in all banks. Due to this, the interest rate on loans increased at the end of the year.
Besides, several banks are currently suffering from liquidity crisis. Due to this, the banks in crisis had to take loans or loans from other banks to meet their daily needs. As demand for cash increases, interest rates rise.
The cost of borrowing money from the interbank money market as well as from the central bank has increased in recent times. Mainly due to increase in defaulted loans, sale of dollars from foreign exchange reserves, slow growth of deposits and government loans becoming dependent on commercial banks, the liquidity crisis in this sector is intensifying day by day. One bank is running to another bank to deal with this crisis. But interbanks do not have the required funds. As a result, the amount of borrowing from the central bank is increasing. Many banks are collecting deposits at high interest rates to overcome the funding crisis.
According to the data of Bangladesh Bank, the total transaction in the interbank currency market was Tk 3,649 crores yesterday. These transactions took place between 6 to 12 and a half percent maximum. On this day, the maximum interest rate for 14-day term loans has risen to 12.5 percent. Tk 157 crores of interest is transacted between some banks. The second highest 11.90 percent interest rate of Tk 50 crore was transacted in 32 days term loan.
15 days term loan interest increased by 11.5 percent, transactions worth Tk 50 crore. Seven-day and five-day term loan interest increased by 11 percent. In the case of these two, the transaction is Tk 65 crores and Tk 98 crores respectively. And the maximum interest of one-day term loans was 9.5 percent, the maximum transaction was Tk 3,111 crore. Besides, loans were also taken in this market for 91 days, 92 days and 183 days. The interest rate of these instruments was 6 to 9.5 percent. However, the average interest rate in inter-bank transactions yesterday was 9.16 percent.
A top official of the central bank said that the short-term loan interest among the banks should not increase so much. Maybe the concerned banks did not have the documents to borrow money from the central bank. As a result, they are forced to borrow money from other banks even at high interest rates. This means cash crunch has increased in interbanks as well. As a result, transactions have also decreased within a day.
On the other hand, about Tk 5,392 crore were traded in the interbank currency market last Tuesday. The maximum interest in these transactions was 12 percent. This interest accrues on that day for a 92-day loan. Besides, on that day, the interest rate for seven days, 13 and 14 days was 11.60 percent, six days was 11.25 percent, two days, 30 days and 90 days were 11 percent and eight days and 9 days. The term interest rate was 10.75 percent. And the interest rate of one day term loan was 9 and a half percent.
Interest rates for borrowing money from interbank as well as central banks have increased in recent times. Still, banks are borrowing record amounts of money from the central bank every day. Last Tuesday, the Central Bank has lent about Tk 20,000 crore under various instruments. On Monday, the amount of this loan was Tk 20,363 crores. And on December 20, the central bank gave a short-term loan of Tk 24,616 crores, which was a record so far. Earlier on October 25, the highest borrowing record was Tk 24,455 crore.
Bangladesh Bank is going to increase the interest rate of all types of loans to control inflation. As part of this, it recently announced another round of hike in all policy interest rates and interest rates for disbursement of loans from commercial banks to consumer level. According to the new decision, 7.75 percent interest has to be charged to borrow money from Bangladesh Bank, which was 7.25 percent earlier. The upper limit of the policy interest corridor Special Repo or SLF-standing lending facility interest rate has been increased by 50 basis points from 9.25 percent to 9.75 percent. In this system, banks in crisis borrow money from Bangladesh Bank at high interest rates. Besides, six months moving average rate of treasury bill interest has been increased by 25 basis points. Now the smart rate is 7.72 percent and banks can add up to 3.75 percent interest. As a result, the highest interest rate of bank loans has risen to 11.74 percent in the current month of December. That is, Bangladesh Bank is on the path of more contractionary money supply. This has increased the cash crisis in the market.