Coronavirus Stimulus Implementation

Bangladesh Bank may further ease policy rates to ensure liquidity supply

HM Murtuza | Published: 21:14, Apr 06,2020


People maintain social distancing amid the coronavirus outbreak in the country while they queue up to get banking services at a branch of a private bank in the capital on Monday. — New Age photo

The Bangladesh Bank is likely to relax further the policy rates with a view to ensuring the availability of adequate cash in the banking system to support the government’s stimulus packages, mostly in the form of loan issuance to the small, medium and large industries.

Under the policy relaxation, the central bank may lower the mandatory cash reserve ratio (CRR) and statutory regulatory ratio (SLR) for the banks, a senior official of the central bank told New Age.

As the government-announced packages are bank-driven, the implementation of the packages would require the availability of fund in the banks so that they can entertain the credit facilities to the businesses.

Asked whether it would require the issuance of any fresh currency by the BB, the official said that there would be no requirement of taking such move for now as the central bank had other tools to increase money flow on the market.

If required, the BB would reduce further the CRR and the SLR to make money available on the market.

Now, there is excess liquidity in the banking sector but there is also a mismatch between the state-owned banks and the private banks as the state-owned banks are holding half of the excess liquidity, the BB official said.

If necessary, the BB may use its regulatory tools to make fund available in the private commercial banks.

On March 23 this year, the central bank reduced the CRR to 5 per cent from 5.5 per cent to enhance the banks’ lending capacity.

Due to the reduced CRR, the banks’ lending capacity has increased by about Tk 6,200 crore if the December-end CRR requirement is taken into consideration.

Before the CRR reduction, the CRR requirement for the banks was Tk 68,210 crore. The requirement dropped to Tk 62,009 crore after the policy relaxation.

If the revised CRR is taken into consideration, the scheduled banks’ excess liquidity has increased to Tk 16,030 crore from Tk 10,480 crore.

The banks have another Tk 1,05,690 crore in liquidity in the form of SLR that takes the total volume of excess liquidity in the banking sector to Tk 1,21,721 crore including Tk 16,030 crore in CRR, as per the BB’s quarterly report for the period of October-December, 2019.

Banks’ SLR includes cash in tills, balance with the BB in foreign currency, balance with Sonali Bank as an agent of the BB, unencumbered approved securities and excess reserve.

Besides preserving 5 per cent as CRR, the scheduled banks are supposed to keep 13 per cent of their deposits as SLR.

As of December last year, banks kept Tk 2,42,800 crore as SLR against requirements of Tk 1,37,100 crore.

Banks kept Tk 3,20,840 crore as CRR and SRL against requirements of Tk 1,99,109.09 crore.

Of the excess liquidity in the form of CRR and SLR, the state-owned commercial banks hold Tk 46,878.18 crore, which accounts for 38.51 per cent of the excess liquidity in the banking sector.

Prime minister Sheikh Hasina on Sunday announced the stimulus packages worth Tk 72,750 crore to overcome the economic losses due to the coronavirus situation.

Of the fresh packages, Tk 30,000 crore announced for large industries and the service sector would be distributed by commercial banks as working capital loan at 9 per cent interest rate with the government providing 4.5 per cent in subsidy.

Under the second package worth Tk 20,000 crore, small and medium enterprises, including cottage industries, would also get working capital loan at 9 per cent interest rate with the government giving 5 per cent as subsidy.

Besides, a Tk 12,750 crore package was earmarked under the Bangladesh Bank’s Export Development Fund to facilitate raw materials imports under back-to-back letter of credit at 2 per cent from 2.73 per cent interest rate.

An amount of Tk 5,000 crore was made to facilitate the ‘Pre-shipment Credit Refinance Scheme’ at 7 per cent interest rate.

Earlier, the government announced a Tk 5,000 crore fund for the payment of RMG workers’ wages.

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