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Idle fund forces banks to rush for govt securities

AKM Zamir Uddin

Scheduled banks with huge idle fund continue to submit a large number of bids in the auction of treasury bills and T-bonds with a view to invest their fund although the government do not accept any bid excluding the auction calendar, said officials of Bangladesh Bank.
According to the BB data, the banks submitted bids worth Tk 4,816 crore on Monday against the government scheduled bids worth Tk 1,600 crore for 182-day and 91-day T-bills.
The banks on December 2 submitted bids worth Tk 7,368 crore against the government scheduled bids worth Tk 1,550 crore for 364-day and 91-day T-bills.
A BB official told New Age that the scheduled banks were now availing Tk 22,000 to Tk 25,000 crore in every working day to operate their treasury activities, but the amount were not used due to a lower loan demand from the private sector amid the ongoing political unrest.
He said that the primary dealers and non-PD banks had recently increased their bid submissions in the auction of government securities, but the bid submission figure was remarkably high in the recent period.
The banks are now holding huge amount of liquidity due to a lower demand from the private sector resulting that they have to go to participate in the auction of the government securities to invest their idle fund, the official said.
The banks are failing to avail their cost of fund which was invested in government securities due to a lower rate of interest ranging 7.69 per cent to 12.33 per cent of the government securities, he said.
The increased trend in submitting bids in the T-bills and T-bonds will continue in the months to come if the existing political unrest continues, he said.
Due to the political unrest, the businesspeople have adopted a ‘wait and see’ approach to expand their business by taking bank loans which pushed up idle fund in the banking sector, he said.
The credit growth in the private sector declined to 11.07 per cent in September compared with that of 19.88 per cent in the corresponding month of last year.
Another BB official said that the government had not needed much borrowing right now from the banking sector which created another problem for the over-liquidated banks.
As per the auction calendar of the T-bills and T-bonds, the government earlier set a target to take borrowing from the banks amounting to Tk 9,200 crore in December, he said.
But, the government has declined the borrowing target to Tk 7,800 crore for this month which put an adverse impact on the over-liquidated banks, he said.
As per the auction calendar of the securities, the government borrowed Tk 9,700 crore in November, Tk 5,600 crore in October and Tk 6,100 crore in September.
The BB data showed that the banks had submitted bids worth Tk 2,683 crore and Tk 2,590 crore for 91-day and 364-day T-bills on November 25 against government scheduled bids worth Tk 1,100 crore and Tk 1,300 crore respectively.
The government organised eight auctions for T-bills and four for T-bonds in November and the banks submitted huge amount of bids in every auction than the scheduled target of the government.
The BB official said that the interest rate on the government securities had recently been decreased as the banks are submitting huge number of bids against the T-bills and T-bonds.
Due to the lower rate of interest on the government securities, the banks will fail to recover their cost of fund as they usually collect fixed and term deposit with higher interest rate between 10 per cent and 12.5 per cent.
The BB data showed that the rate of interest rate on 91-day and 364-day T-bill had declined to 7.69 per cent and 9.85 per cent respectively on December 1, 2013 from 9.16 per cent and 11.04 per cent respectively in December 2012.
The rate of interest on 182-day T-bills also declined to 8.49 per cent in December 2013 from 11.07 per cent in December 2012.
The rate of interest on T-bonds, however, did not change much as the banks are reluctant to invest in the bond as the maturity period of the securities is long between 2 years and 20 years.

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