Ten banks have agreed to provide liquidity support to nine struggling banks through interbank market, with the central bank assuming responsibility for repaying any loans if these crisis-hit banks fail to do so.
This decision was made during a meeting between the Bangladesh Bank and the better-performing banks on Wednesday.
Initially hesitant to offer support due to confusion about mechanisms involved, these banks changed their stance after receiving assurance of security from the central bank, according to BB officials.
The ten banks participating in this initiative, which have adequate funds, include Sonali Bank, Bank Asia, BRAC Bank, Dhaka Bank, Dutch Bangla Bank, Eastern Bank, Shahjalal Islami Bank, City Bank, Mutual Trust Bank and Pubali Bank, they said.
BB spokesperson and executive director Husne Ara Shikha stated that the nine struggling banks, whose boards had been reconstituted and had their negative account with the BB, would get liquidity support.
Of these nine banks, five have already signed memorandums of understanding with the BB and two more banks are in the queue, but no bank has so far received liquidity support from other banks.
After holding meeting with the BB, the 10 participant banks agreed to provide the liquidity facility to the troubled banks, she said.
While the banks will provide liquidity support, the central bank will determine the amount allocated for each struggling bank, she added.
The interest rates will vary among banks based on the amounts and their capacity, potentially aligning with the BB鈥檚 standing lending facility rate, currently at 11 per cent.
This liquidity support will be available for three months, with the possibility of rolling over for up to one year.
On September 22, the Bangladesh Bank signed MoUs on credit guarantee with five financially troubled banks, namely National Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank, to help these banks partially return funds to their depositors.
These banks had recently undergone board restructuring due to their previous affiliation with the controversial S Alam Group.
On September 4, BB governor Ahsan H Mansur announced limited bailouts for eight banks formerly controlled by this group, emphasising that these measures would not involve printing money but rather providing credit guarantees to facilitate interbank lending.
Mansur acknowledged the severe financial distress of these banks, which were unable to return depositors鈥� funds, necessitating immediate intervention to prevent further chaos.
BB officials reported that seven banks had already requested a combined liquidity support of approximately Tk 25,000 crore under this arrangement, highlighting their dire circumstances.
First Security Islami Bank requested the highest assistance of Tk 7,900 crore, followed by Islami Bank and National Bank, each requesting Tk 5,000 crore, EXIM Bank Tk 4,000 crore, Global Islami Bank Tk 3,500 crore, Social Islami Bank Tk 2,000 crore and Union Bank Tk 1,500 crore.
Mansur indicated that a significant amount had allegedly been siphoned off from these banks, contributing to their current predicaments.
Addressing these losses is estimated to require about Tk 2 lakh crore, a figure deemed unfeasible due to the risk of pushing inflation beyond 25 per cent, which would further destabilise the economy.
As a stopgap measure, the BB has encouraged solvent banks to extend limited liquidity to the troubled banks to address urgent depositor withdrawals.
Currently, nine banks are operating with a combined negative current account balance of Tk 18,165 crore with the Bangladesh Bank, relying entirely on the central bank鈥檚 lifelines to remain afloat.
According to BB data, First Security Islami Bank has the highest negative balance of Tk 7,269 crore, followed by Social Islami Bank Tk 3,394 crore, National Bank Tk 2,342 crore, Union Bank Tk 2,209 crore, Islami Bank Tk 2,201 crore, Bangladesh Commerce Bank Tk 380 crore, Padma Bank Tk 234 crore, ICB Islami Bank Tk 95.8 crore and Global Islami Bank Tk 39.39 crore.
A bank鈥檚 current account with the central bank is essential for meeting cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements, as well as for facilitating transactions between banks.
Insufficient funds in a bank鈥檚 account can disrupt operations, preventing the central bank from processing transactions.
