Anxiety of liquidity-strapped banks has started easing as five cash-surplus banks finally made available funds amounting to Tk 9.45 billion to four struggling peers under the central bank’s guarantee programme.
Under the bailout arrangement, according to officials and bankers, more liquidity support by lender banks are in the pipeline to revitalise the badly crisis-ridden banks.
As banks’ liquidity depleted fast following loan-related irregularities and panic withdrawal, five cash-hungry commercial lenders approached the regulator later last month to obtain its nod to play guarantor for banks in failure of repaying credit borrowed from cash-surplus banks.
The struggling five were National Bank Limited (NBL), First Security Islami Bank Limited (FSIBL), Global Islami Bank (GIB), Social Islami Bank Limited (SIBL) and Union Bank.
Despite the sovereign guarantee, the problem banks failed to get cash from interbank sources.
Later, the Bangladesh Bank (BB) stepped up with its intervention and convinced the compliant banks to come forward in feeding their weaker counterparts.
According to the BB, five banks — City Bank, Mutual Trust Bank, Dutch-Bangla Bank, Eastern Bank and Bengal Commercial Bank — under the guarantee-backed liquidity support scheme gave Tk 9.45 billion to four liquidity-starving banks.
Of the amount, SIBL received Tk 3.5 billion, FSIBL Tk 3.0 billion, NBL Tk 2.70 billion and GIB Tk 250 million.
Seeking anonymity, a BB official said the board of the state-owned Sonali Bank approved liquidity support amounting to Tk 30 billion at the eleventh hour on Wednesday.
Financially robust banks like Eastern Bank, Shahjalal Islami Bank, BRAC Bank and Dhaka Bank will soon approve more cash support for troubled banks.
“So, it will be a comprehensive cash-support programme backed by the central bank guarantee, and we’ll gradually release funds observing the state of the weaker banks,” the central banker told the FE.
MTB managing director and CEO Syed Mahbubur Rahman says their board has approved the cash-support scheme to help their counterparts overcome crises.
If any bank falls into a tight spot because of liquidity dearth, it will have a spillover impact to the whole industry, according to him.
“So, cash support is very timely and it (our participation) is a reflection to support the central bank’s ongoing strategy to revitalise problem banks,” said the experienced banker.
He said the central bank assured bankers of repaying funds within three days under the guarantee policy if cash-hungry banks fail to pay back within the stipulated timeframe.
“It gives us a comfortable space,” cited Mr Rahman.
According to the guarantee scheme, the BB imposed nine conditions stipulating that liquidity support would be maximum for one year on a three-month basis, interest rate be fixed at 11 per cent equivalent to the existing level of the special liquidity facility (SLF) rate in its agreements with five banks.
In case of a failure to repay by crisis-hit banks, liquidity providers can create 90-day-tenure forced loans in the names of borrowing banks.
The central bank will be empowered to deduct funds from those banks’ current accounts with the BB in case of their failure to repay the loans on time as per the agreement.
An additional 2.0-per cent interest or profit will be imposed on the SLF rate if the loans are not repaid on time.
If the BB fails to recover funds from borrowers’ current accounts, it will recover cash by selling the banks’ permanent assets, bonds and other securities.