The banking sector is experiencing a significant liquidity crisis, compelling commercial banks to borrow heavily from the central bank. On May 15, 2024, 36 banks and one non-banking financial institution (NBFI) borrowed Tk 13,850 crore through repo and liquidity facilities, as per Bangladesh Bank’s press release.
In an auction held for liquidity support, 19 banks and NBFIs secured Tk 5,925 crore via one-day and seven-day repo facilities, while 18 primary dealer (PD) banks received Tk 7,160 crore under the Assured Liquidity Support Facility (ALSF). Interest rates for these facilities were 8.5% to 8.6%.
The liquidity crunch stems from high inflation, a foreign exchange crisis, rising interest rates on government treasury bills, and increased policy rates. Banks are increasingly investing in treasury bills, benefiting from interest rates exceeding 11%. To address this ongoing issue, Bangladesh Bank will shift to weekly repo liquidity support from July, instead of daily.
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