Banks are increasingly investing in Treasury bills and bonds to capitalize on rising interest rates, significantly reducing loan availability for borrowers. Government borrowing through these instruments surged to Tk 78,117 crore from July to May, a 337% increase year-on-year. This spike follows the central bank’s halt in direct lending to curb inflation, which has remained above 9% for nearly two years.
Banks prefer government securities due to their security and high returns; Treasury bill rates rose to 11.60-12%, up from 6.75-7.75% last year, while bond rates hit a 15-year peak of 12.75%. Despite rising liquidity reported at Tk 1,76,205 crore in April, concerns persist due to limitations in instantly converting these assets to cash. Banks have sought around Tk 20,000 crore in liquidity support from the central bank, addressing liquidity mismatches exacerbated by soaring default loans and economic slowdowns from pandemic and geopolitical impacts.
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