Five banks have received guarantees from the Bangladesh Bank (BB) to access liquidity support from the inter-bank money market, according to officials from the central bank.
The moves come in the wake of the reconstitution of their boards following the formation of the interim government in August.
First Security Islami Bank, Global Islami Bank, Social Islami Bank, and Union Bank signed agreements with the BB on Sunday (22 September), while National Bank formalised its agreement on Thursday (12 September).
However, the central bank has imposed nine conditions in the agreements with the five banks. As part of these terms, the banks must pay a 0.25% guarantee fee on the guaranteed amount.
The guarantee covers a period of three months on a case-by-case basis, with loans to be repaid with profit at the end of the term.
Once the loans are repaid, the banks may reapply for additional loans for a further three months, with a total possible rollover period of one year.
If the banks fail to repay on time, the liquidity provider banks may impose forced loans with a 90-day tenure in the name of the borrowing banks.
The interest or profit on these loans will be charged at the existing Special Liquidity Facility (SLF) rate.
Should a bank default, BB will deduct the repayment from the bank’s current account with the central bank, with an additional 2% interest imposed for overdue amounts.
In cases where funds cannot be recovered from current accounts, the BB may sell the bank's permanent assets, bonds, or securities to recover the funds.
The banks must also provide relevant information and documents to the central bank as required, and the BB reserves the right to modify the guidelines of the guarantee agreements.
Recently, seven banks that had undergone board restructuring applied for BB guarantees after the new central bank governor, Ahsan H Mansur, indicated this step.
BB emphasised that the central bank would not print money for liquidity, as done previously, but would enable banks to seek support from the inter-bank money market instead.
Among the seven banks, Islami Bank Bangladesh requested Tk5,000 crore in liquidity support; Social Islami Bank Tk2,000 crore; First Security Islami Bank Tk7,900 crore; Union Bank Tk1,500 crore; Global Islami Bank Tk3,500 crore; National Bank Tk5,000 crore; and Exim Bank Tk4,000 crore.
A senior central bank official, speaking anonymously, stated that BB would not approve guarantees for the full amounts requested, opting instead to issue guarantees on a case-by-case basis.
The central bank is also expected to finalise agreements with Islami Bank Bangladesh and Exim Bank.
"We signed an agreement with the central bank for the guarantee, and it will take three to four days to receive the liquidity support," stated Mohammad Forkanullah, acting managing director of Social Islami Bank.
He further added that Social Islami Bank had already approached state-run banks regarding the liquidity.
