The Bangladesh Bank extended a loan of Tk22,000 crore to seven banks grappling with liquidity challenges on December 28.
Acting as the “lender of last resort,” the central bank provided this financial support for three days, as disclosed by Bangladesh Bank Spokesperson Mezbaul Haque. This lending practice is routine, and banks can borrow funds through demand promissory notes and securities under the Bank Companies Act.
Notably, five of the seven banks are Islamic banks, and the other two are private scheduled banks. Industry experts suggest that such measures may be employed to present a more favorable financial outlook, but it also indicates challenges in maintaining sufficient usable bills and bonds required for traditional borrowing. The banks in question, facing a prolonged deficit in their current accounts, have resorted to borrowing with demand promissory notes, pledging to return the funds in any feasible manner.
The central bank’s temporary assistance will reflect positively on the banks’ year-end balance sheets, but challenges are anticipated in meeting cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements in the following year, potentially leading to fines. As per Bangladesh Bank’s policy, banks must deposit a portion of their total current and term deposits with the central bank to safeguard depositors, with the rate set at 17% for conventional banks and 9.5% for Shariah-based banks, and penalties are imposed for any shortfalls.
