The Bangladesh Bank on Sunday agreed to provide credit guarantee to reassure other banks to lend to five financially troubled banks through the interbank money market, aiming to help these banks partially return funds to their depositors.
A memorandum of understanding was signed between the central bank and these struggling banks —National Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank.
Before the recent restructuring by the central bank, these banks were under the grip of controversial S Alam Group.
BB officials said that the BB would provide guarantee in accordance with an individual bank’s status and need, and all banks would not get same amount of liquidity support.
On September 4, BB governor Ahsan H Mansur announced that the central bank would facilitate limited bailouts for eight banks previously controlled by the S Alam Group.
He emphasized that these bailouts would not involve printing money, but rather providing credit guarantees to encourage other banks to lend to the distressed banks through interbank channels.
Mansur noted that the banks in question had effectively collapsed, failing to return depositors’ funds, necessitating immediate intervention to prevent further financial chaos.
The dire financial state of these banks, marked by liquidity shortages and a collapse of depositor confidence, prompted the central bank to act.
BB officials said that seven banks had already sought a combined liquidity support of about Tk 25,000 crore under the arrangement.
First Security Islami Bank sought highest assistance of Tk 7,900 crore followed by Islami Bank Tk 5,000 crore, National Bank Tk 5,000 crore, Global Islami Bank Tk 3,500 crore, Social Islami Bank Tk 2,000 crore, and Union Bank Tk 1,500 crore. Previously, these banks were under the grip of controversial S Alam Group.
EXIM Bank also sought Tk 4,000 crore of liquidity support.
The banks’ demands highlight the severity of their financial distress.
BB governor Mansur had said that a substantial amount had allegedly been siphoned off from these banks, contributing to their current predicaments.
Addressing these losses would require about Tk 2 lakh crore — a figure deemed unfeasible as it would risk driving inflation beyond 25 per cent, further destabilising 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.
This interim solution aims to mitigate immediate financial pressures but falls short of addressing the structural flaws that led to the crisis.