Money markets remain volatile to the growing demand of banks' for liquidity, bolstered by an increase in government borrowing through treasury bills and bonds.
The inter-bank call money rate reached 12 percent yesterday, the rate the Bangladesh Bank (BB) capped in December last year after it reached more than 160 percent.
"What is important for the money market is liquidity. The volatile situation will not improve unless the BB sells adequate amount of liquidity against demands of the commercial banks," said a senior treasury official of a private commercial bank (PCB).
Officials in different PCBs said they demand Tk 30,000-32,000 crore everyday through repo, by which the central bank sells cash to the banks. But they get only Tk 7,000-8,000 crore, of which Tk 5,000-6,000 crore is assured liquidity provided only for the primary dealer banks.
Some 6-7 banks that have lent beyond their capacities are in severe liquidity crunch following the BB directive on bringing down the loan-deposit ratio to 85 percent by June.
The ongoing liquidity crisis has affected not only the banks, also the stockmarket, industries and importers. Many banks are now unable to pay against a large or a mid-sized LC (letter of credit).
The central bank, however, holds differing views on the pressure in the money market. It says the liquidity crisis was due to the inefficiency of the PCBs' fund management.
"The banks fell into liquidity crisis due to their inefficient fund management. The Asset-Liability Committee headed by the chief executive officers failed to perform prudently," said Jahangir Alam, executive director of the BB.
He said some banks gave loans to industries, which are unsure of getting electricity and gas connections.
"Banks have given loans to new CNG stations, which are not getting gas supplies," Alam, also the in-charge of the Banking Regulations and Policy Department of the BB, said, citing an example.
Now these banks are in troubles to maintain the loan-deposit ratio within the ceiling of 85 percent by next month. Many banks are offering 13.5 percent interest for deposits to comply with the obligation.
But the bankers find other reasons for the current pressure in the money market. They said the growing government borrowing from the banking sector and a huge demand for money arising from the soaring prices of commodities on international markets led to the crisis.
The government has already borrowed Tk 11,000-12,000 crore from the banks and the trend continues, said the bankers.
The private bankers also differed with the central bank's calculation and publicity on the excess liquidity.
"How much of this excess liquidity is in cash? I have to maintain CRR (cash reserve requirement) in cash," said an aggrieved official who heads treasury department of a private bank that is also a primary dealer.
He said, if the BB says there is Tk 28,000 crore excess liquidity in the market, the cash is not more than Tk 3,000 crore. "About Tk 25,000 crore of this liquidity is in treasury bills and bonds," he pointed out.
According to private bankers, the primary dealer banks are in great troubles, as they have to meet regulatory obligations in the form of investing in treasury bills and bonds.
"I have nearly Tk 1,400 crore excess holding in treasury bills and bonds and now I have to borrow at higher rate to maintain the CRR and provide money to borrowers," said the official of the dealer bank.
A chief executive of a private bank said he disagreed with the BB on the score of poor fund management by banks, rather credit exceeded deposit due to a surge in demand.
"We had to open large LCs for cotton, raw sugar, petroleum and equipment for power plants at three times higher prices compared to last year," said the CEO, requesting he not be named.
The good news is that the signs of recovery have shown up recently, said Helal Ahmed Chowdhury, managing director of Pubali Bank. "The situation has improved except for a few banks that had greatly mismanaged their funds," he added.
The inter-bank call money rate reached 12 percent yesterday, the rate the Bangladesh Bank (BB) capped in December last year after it reached more than 160 percent.
"What is important for the money market is liquidity. The volatile situation will not improve unless the BB sells adequate amount of liquidity against demands of the commercial banks," said a senior treasury official of a private commercial bank (PCB).
Officials in different PCBs said they demand Tk 30,000-32,000 crore everyday through repo, by which the central bank sells cash to the banks. But they get only Tk 7,000-8,000 crore, of which Tk 5,000-6,000 crore is assured liquidity provided only for the primary dealer banks.
Some 6-7 banks that have lent beyond their capacities are in severe liquidity crunch following the BB directive on bringing down the loan-deposit ratio to 85 percent by June.
The ongoing liquidity crisis has affected not only the banks, also the stockmarket, industries and importers. Many banks are now unable to pay against a large or a mid-sized LC (letter of credit).
The central bank, however, holds differing views on the pressure in the money market. It says the liquidity crisis was due to the inefficiency of the PCBs' fund management.
"The banks fell into liquidity crisis due to their inefficient fund management. The Asset-Liability Committee headed by the chief executive officers failed to perform prudently," said Jahangir Alam, executive director of the BB.
He said some banks gave loans to industries, which are unsure of getting electricity and gas connections.
"Banks have given loans to new CNG stations, which are not getting gas supplies," Alam, also the in-charge of the Banking Regulations and Policy Department of the BB, said, citing an example.
Now these banks are in troubles to maintain the loan-deposit ratio within the ceiling of 85 percent by next month. Many banks are offering 13.5 percent interest for deposits to comply with the obligation.
But the bankers find other reasons for the current pressure in the money market. They said the growing government borrowing from the banking sector and a huge demand for money arising from the soaring prices of commodities on international markets led to the crisis.
The government has already borrowed Tk 11,000-12,000 crore from the banks and the trend continues, said the bankers.
The private bankers also differed with the central bank's calculation and publicity on the excess liquidity.
"How much of this excess liquidity is in cash? I have to maintain CRR (cash reserve requirement) in cash," said an aggrieved official who heads treasury department of a private bank that is also a primary dealer.
He said, if the BB says there is Tk 28,000 crore excess liquidity in the market, the cash is not more than Tk 3,000 crore. "About Tk 25,000 crore of this liquidity is in treasury bills and bonds," he pointed out.
According to private bankers, the primary dealer banks are in great troubles, as they have to meet regulatory obligations in the form of investing in treasury bills and bonds.
"I have nearly Tk 1,400 crore excess holding in treasury bills and bonds and now I have to borrow at higher rate to maintain the CRR and provide money to borrowers," said the official of the dealer bank.
A chief executive of a private bank said he disagreed with the BB on the score of poor fund management by banks, rather credit exceeded deposit due to a surge in demand.
"We had to open large LCs for cotton, raw sugar, petroleum and equipment for power plants at three times higher prices compared to last year," said the CEO, requesting he not be named.
The good news is that the signs of recovery have shown up recently, said Helal Ahmed Chowdhury, managing director of Pubali Bank. "The situation has improved except for a few banks that had greatly mismanaged their funds," he added.