Call money market shrinks as banks rush to BB

Business Desk:

The interbank call money market, a crucial channel for short-term liquidity among banks, is currently seeing a notable decline as banks opt to deposit their surplus cash with the Bangladesh Bank’s Standing Deposit Facility (SDF) instead.

According to the Bangladesh Bank data, total call money turnover in June stood at Tk 88,790.24 crore-marking a 14.61 per cent drop from May.

At the same time, banks’ usage of the SDF surged to Tk 72,730 crore in June-an increase of 157.71 per cent compared to Tk 28,222 crore in May.

The significant shift was puzzling as the weighted average rate (WAR) of call money remained high at 10.32 per cent in June, while the interest offered under the SDF was considerably lower at just 8.50 per cent, market analysts said.

This preference for a lower-yielding, but safer avenue suggests that banks are increasingly favouring security and regulatory compliance over returns, they said.

Bankers said that trust among banks has eroded due to growing concerns over rising non-performing loans (NPLs), governance issues, and stricter oversight from the central bank. In this environment, many banks are reluctant to lend even overnight to their peers. Instead, they are choosing to place their excess funds with the central bank, where the risk of loss is virtually zero.

The SDF, introduced under Bangladesh Bank’s interest rate corridor framework, is a tool that allows banks to deposit surplus funds with the central bank on an overnight basis.

The SDF mechanisms, though yielding lower returns, offer regulatory comfort and capital preservation, unlike the uncertain counterparties in the call money market.

Bankers said even the country’s large state-owned and private commercial banks-once active lenders in the call market-are now avoiding it.

Some liquidity-strapped banks are finding it difficult to borrow money from other banks, even after offering rates as high as 10.50 per cent.