Banks facing serious liquidity crisis
Mahfuja Mukul: Banks are not getting deposits at the rate they are lending. Due to this, many banks are facing severe liquidity crisis. As a result, banks have to borrow money from another bank at high interest to meet the daily cash demand.
Banksare now borrowing money from other banks at up to 10 percent interest. For one day the interest rate in the money market (borrowing money from other banks) has gone up to 7.62 percent. The rate of treasury bills, one of the government’s means of borrowing money, has also increased. Some banks are raising deposit interest to overcome this crisis. However, it is not able to increase much, because the central bank has fixed the loan interest rate at 10 percent to 10.5 percent.
Bankers said that after Corona, Bangladesh Bank gave a special discount on loan repayment by showing various crises of Russia-Ukraine war and world economy. Taking advantage of this, many big customers of the banks are increasing loans year after year but not returning the money. Many others are smuggling money abroad by taking loans and looting through political influence and forgery. As a result, money is not coming back at the same rate as it is going out of the bank.
Again, many people are not keeping money in the bank because the interest rate on deposits is now lower than inflation. As a result, there has been a major shortfall in cash flow. That is, a liquidity crisis has arisen. Now one bank has to borrow money from another bank to meet the daily demand of money including refund of customer deposits.
Policy Research Institute (PRI) executive director and economist Dr. Ahsan H. Mansoor said Daily Industry that the bank has less money. So, they are not running on their own liquidity. Having to borrow from other banks at high interest. Apart from this there are some banks which are already weak, they are also charging high interest rates.
He said that if there was no limit on the interest rate, the interest rate would have increased further. However, at this time of inflation, it is important to keep the currency market under control. Besides, the exchange rate should be discounted.
According to the Central Bank, loans are given in various tenors oncall. These loans are given in terms of 91 days, 7 days, 4 days, 2 days and 1 day. Most of these are loaned within a day.
According to the information of the central bank, on Tuesday (October 17), Tk 3,251 crores were traded on call market at 7.62 percent interest. The previous day, on Monday, 7.47 percent interest was traded at Tk 3,505 crores. Tk 3,687 crore were traded on Sunday at 7.48 percent interest. In addition to money, the interest rate for borrowing money between banks for a period of 5 to 14 days has also increased up to 10 percent. A year ago in October 2022, the callmoney rate was 5.82 percent.
Call money rate data from May 2016 is available on the central bank’s website. It has been seen from the data that ‘overnight loans’ have not been given at such a high rate in more than 7 years.
Former chairman of Association of Bankers Bangladesh (ABB), the association of chief executives of banks, Mohammad Nurul Amin told the Daily Industry that the increase in the interest rate of call means that the banks are in liquidity crisis. When there is a liquidity crunch, one bank borrows money from another bank for a short period of time. Increase in call rate means more money demand in the market. So those who have money are increasing the interest. However, due to the ‘SMART’ or ‘Smart’ rate, they are not able to take more, because according to the rules, the interest limit of loans with the ‘Smart’ rate is fixed at two percent or more. Otherwise, this rate would have gone up.
He also said, on the one hand, the ability of people to save money has decreased due to the pressure of inflation. On the other hand, the interest rate on deposits is low. Elections are coming up. Many may keep money to themselves thinking that there may be political problems. Apart from this, the trust of ordinary depositors towards Islamic banks has decreased somewhat. So, the deposits are not coming in at the desired rate.
The former leader of the bankers said that the liquidity crisis at this time means that the money is not kept in the bank but there is cash in hand. It will be like this for another two-three months.
According to the latest information, on Monday (October 16), banks have borrowed Tk 5,280 crore from the Central Bank through various means including repo. In all, Tk 14,472 crore were borrowed under repo, standing lending facility and liquidity support facilities on that day. Where the repo interest rate was 7.35 percent.
Meanwhile, many are keeping money in hand during the election year. On the other hand, due to unprecedented loan scams, money laundering and liquidity crunch in banks, there has been a crisis of confidence among many customers. Apart from this, the cost has increased due to the pressure of inflation. Many people are losing interest in keeping money in banks due to low interest rates. Due to all these reasons, the trend of not keeping money in the bank has increased throughout the year.
Many people always keep cash with them for various reasons including daily shopping, payment of various bills, house rent etc. Apart from this, cash is also required for business transactions. When inflation or commodity prices rise, the need to hold cash increases. Apart from this, the illegally earned money is mostly transacted in cash. which is in people’s hands. Again, even if the remittance or expatriate income increases in Hundi, the flow of cash increases. Then the pressure of cash increases.
According to the data of Bangladesh Bank, in August 2022, the amount of money outside the banking sector was Tk 241,876 crores. But at the end of August this year, its amount has increased to Tk 258,356 crores. In other words, in the span of a year, money has gone from banks to people’s hands, about Tk 17 thousand crores.
Last August, the amount of deposits in the bank sector was Tk 16 lakh 17 thousand 675 crores. At this time, the amount of debt stood at 18 lakh 85 thousand 553 crores.
According to Bangladesh Bureau of Statistics (BBS) data, after a slight decrease in inflation in the country in June and July, it increased again in August. Inflation rose to 9.92 percent in August. At this time, food inflation in the country has suddenly increased a lot. Food inflation rate rose to 12.54 percent. Which never happened last year. In the previous month, inflation in this sector was 9.76 percent. In other words, food inflation increased by 2.78 percent in August.
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