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Bank & Finance - September 13, 2023

Borrowing from commercial banks for repaying BB loans

Govt’s loan from banking net

Mahfuz Emran: The government’s bank loans for the outgoing financial year were directed towards the central bank. However, this trend has decreased in the current financial year. Now the government is repaying the central bank loan by taking loans from commercial banks. Even though the liquidity situation of the banks is bad, the government’s debt is increasing the pressure in this sector, the stakeholders think.
In the first two months of the current fiscal year, Tk 18,805 crores of loan has been taken from commercial banks. At the same time, it paid Tk 22,088 crores to the central bank. This information is known from the report of Bangladesh Bank.
The stakeholders said that the government is taking loans from commercial banks instead of taking loans from Bangladesh Bank to control high inflation. Because Bangladesh Bank providing direct loans to the government is like printing new money and releasing it into the market, which incites inflation.
According to the report, the government’s debt status from Bangladesh Bank at the end of last June was Tk 157,640 crore. And in August it decreased to Tk 135,552 crore. In other words, the government has paid Tk 22,088 crores to Bangladesh Bank in two months.
On the other hand, at the end of last June, the debt status of the government in commercial banks was Tk 236,138 crores. And in August it increased to Tk 254,943 crores. In other words, government debt from commercial banks has increased by Tk 18,805 crores in two months.
In total, the net debt of the government in the banking system has decreased by Tk 3,283 crore in two months. At the end of June, the government’s total debt from the banking system was Tk 393,778 crore. And in August it decreased to Tk 390,495 crore.
Those concerned think that it cannot be said by looking at the picture of one or two months, this time the government will take less loan from the bank. Because at the beginning of the fiscal year, government spending is already low. Expenditure can be met with revenue income and borrowing from foreign sources.
It is known that many banks are borrowing now due to liquidity crisis. Recently, one bank has been borrowing large sums from other banks and from the central bank to meet its daily needs. In general banks are not seen to borrow so much. Decline in deposit collection and loan default are major reasons for this. Paying large amount of money to buy dollars from Bangladesh Bank is also one of the reasons. Bankers fear that the liquidity crisis will deepen if the government borrows from the banks in such a situation.
They said that the central bank gives various concessions in debt repayment citing the reasons of Corona or Russia-Ukraine war. Again, a section of large borrowersare not returning the money even after increasing the loan year after year. Due to this, there has been a major deficit in the bank’s cash flow.
An official of Bangladesh Bank said that due to the dollar crisis, the central bank has sold $2,250 million from the reserve in the last two years. Against this, Tk 225,000 crores have come out of the market. That is why there is a shortage of money in the market along with the dollar. However, liquidity in the market has been increased through alternative means. If the liquidity was not increased, there would have been a huge uproar over money like the dollar.
Incidentally, the government took a record Tk 122,980 crore from the banking system last financial year. Out of this, Bangladesh Bank provides Tk 97,684 crores. All in all, at the end of last June, the debt status of the government in Bangladesh Bank stood at Tk 157,677 crores. And commercial banks give Tk 25,296 crores. In all, the government’s debt to commercial banks stands at Tk 239,616 crores. The government has set a target of Tk 132,395 crore loan from the banking system for the current financial year.

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