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Primary dealer (PD) banks come under a major regulatory move as the central bank has decided to discard the assured liquidity support (ALS) for them, officials said.

Officials concerned at the Bangladesh Bank (BB) said the central bank introduced this liquidity-feeding window only for the PD banks in 2008 as they have the underwriting obligation to devolve any unsubscribed bidding in the auctions of government securities (G-Sec).

As the PD banks have not been going through any devolvement over a period of more than three financial years (FYs), the continuation of ALS would be irrational and have a detrimental effect on ensuring a level playing field for all banks, they said.

Apart from that, the International Monetary Fund (IMF) was critical about the continuation of the facility for the 24 PD banks during this non-devolvement regime and suggested the government abolish it as part of the $4.70 billion lending package to stabilise the country’s macroeconomic situation.

In addition to that, sources said BB Governor Dr Ahsan H Mansur signed a proposal last week, asking the department concerned to take measures to discontinue the liquidity facility.

Seeking anonymity, a BB official said PD banks have the underwriting obligation to devolve any unsubscribed bidding in G-sec auctions by themselves and purchase the unsubscribed part of the auctions.

Against such investment in the form of devolvement, the official said, the banking regulator has allowed the PD banks to avail liquidity support through the ALS window at the repo rate, which is 10 per cent now.

But for the last three FYs, the central banker said, no devolvement by the PD banks took place. “That is why the BB decided to discontinue such liquidity-feeding instrument for the PD banks. The decision may be implemented after the current FY.”

The BB official also said the central bank recently held a meeting with the treasury heads of the country’s commercial banks and informed them about the possible regulatory axe.

ALS is a kind of overnight borrowing instrument of the central bank which the PD banks largely use primarily to maintain their cash reserve ratio (CRR) requirement with the BB.

BB statistics show the country’s 24 PD banks availed liquidity support amounting to Tk 317.24 billion in the last 11 working days – from February 19 to March 5. On average, they altogether borrowed nearly Tk 40 billion a day.

Bankers, however, expressed their concerns over the possible discontinuation of the facility, saying it would further intensify the liquidity pressure and may force banks to be more conservative about participating in the government’s domestic borrowing arrangements.

Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB), a PD bank, Syed Mahbubur Rahman said some banks have enough liquidity but a good number of them are under liquidity stress, adding they largely depend on BB liquidity support.

On the other hand, he said, the liquidity windows keep shrinking in recent times. “If the ALS facility is phased out, it will create further pressure on banks in terms of liquidity.”

The experienced banker said it is better for the regulator to hold a stakeholder meeting before making such decisions so that banks have the opportunity to prepare.

“I hope the regulator will continue providing the repo-backed liquidity facility in the days to come. Otherwise, it will be very difficult for banks to continue their operations,” Mr Rahman said.

Speaking on condition of anonymity, the treasury head at a PD bank said the regulator can discard the concept of primary dealer bank as no difference remains between PD and non-PD banks without ALS.

This is because non-PD banks can directly bid in the G-sec market under the existing framework, he explained.

He also said the investment climate keeps squeezing in recent times because of the economic slowdown in the wake of political uncertainty caused by the changeover in state power after the 2024 mass uprising that toppled the Sheikh Hasina regime.

Once a political government comes to power, the treasury official said, economic activities will surely rebound at an accelerated pace in the country’s development projects and the government will require an increased volume of funds through domestic bank borrowing.

Under such circumstances, he said, it would be very difficult for the government to meet the financing needs as the PD banks may not feel encouraged to participate in the auctions in the post-political government regime without such liquidity facility.    today.thefinancialexpress.com.bd