BB steps to ensure smooth liquidity supply in banks

Staff Correspondent

26 March, 2020 12:00 AM printer

Bangladesh Bank (BB) has taken different steps to ensure smooth liquidity supply to facilitate financial transactions across the country amid the disruptions caused by the Coronavirus pandemic.

“More steps will be announced as per the need of the financial sector to help the sector navigate the crisis,” BB spokesperson Md Serajul Islam told the Daily Sun on Wednesday.

The central bank is closely monitoring the situation and working with the banks to ensure sufficient liquidity supply, safe cash transfer, available balance in the ATM booths, uninterrupted operations of Mobile Financial Service (MFS) and online services of the banks, he added.

BB assessed the preliminary impact of the Coronavirus crisis on the business sector, caused by the cancellation of purchase orders by international buyers, a fall in overall export-import orders and industrial productions and the slowdown in the capital markets, and a disruption in the

repayment of loans to banks and non-banks financial institutions (NBFIs), Serajul Islam said.

BB governor Fazle Kabir already consulted with economists and experts to prepare an effective policy to limit the impact caused by the pandemic, he said.   

The demand for cash has increased in the banks over the last few days as clients are withdrawal additional money amid the crisis. To keep the situation normal and meet the liquidity demand, BB had lent the banks more than Tk 120 billion in a single day in the current week.

Bankers say the banks are in short of cash supply as the many customers withdrew their money from banks after the government fixed the interest rate at 6 per cent.

Besides, the government is withdrawing deposits of state-owned companies from the banking sector, further fueling the liquidity crisis in banks. Officials of the central bank’s Data Management Department say people are withdrawing additional cash from banks amid the Covid 19 crisis.

The central bank is providing money to the banks as per their demand. So there is no reason to panic, Sirajul Islam assured.

A branch manager of a private bank told this correspondent that eight out of 10 customers are visiting the banks to withdraw cash. ATM booths are also witnessing a rush in withdrawals.

In an unprecedented move, the central bank said it will buy Treasury bills and bonds from banks and non-bank financial institutions (NBFIs) to tackle the impending economic slowdown brought on by the coronavirus pandemic.

The government securities from the secondary bond market will be purchased so that the liquidity management of banks and NBFIs do not face any impediment during this period, central bank notice said.

The central bank will purchase the securities on the market rate to be determined by auction.

The interest rate on the government securities was between 7.10 per cent and 9.10 per cent as per the immediate auctions.

The central bank rarely purchases T-bills and bonds from banks.

“This is the first time that the central bank has issued such a notice formally. We had to change seeing the market is facing a severe liquidity crunch,” said a Bangladesh Bank official.

Banks will be allowed to sell their T-bills and bonds after holding their statutory liquidity ratio (SLR).

Lenders hold the majority of the excess liquidity in the form of T-bills and bonds. Excess liquidity in the banking sector stood at Tk 1056.46 billion as of December last year, according to data from the central bank.


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