Muhid Hasan :
Liquidity support into the credit-hungry banks marks a persistent rise as Bangladesh Bank has allow Tk 29,000 crore in liquidity support to nine struggling banks, since the change in government in August 2024.
Correspondingly, ahead of Eid-ul-Fitr several financially troubled banks have sought additional liquidity support from the central bank to manage a surge in cash withdrawals.
According to sources within the central bank, at least six banks have requested Tk 5,000 crore in liquidity assistance to meet the increased demand.
However, the central bank has advised them to borrow from financially stable banks under the Bangladesh Bank guarantee scheme, First Security Islami Bank, Global Islami Bank, Social Islami Bank, Union Bank, and National Bank have entered into agreements with Bangladesh Bank to access loans through this scheme.
Industry insiders observed that the several banks reeling from acute liquidity shortfalls because of their growing NPLs and depositor’s trust deficit.
Likewise the banking sector supporting on a full scale government’s domestic bank borrowing to make up for budgetary deficit as government’s borrowing from banks has risen sharply in first eight months to Tk 86,000 crore of the current financial year of 2024-25 due to dismal revenue mobilization.
A week ago, Bangladesh Bank approved an additional Tk 2,500 crore in liquidity support to Social Islami Bank and First Security Islami Bank to manage the Eid-ul-Fitr withdrawal pressure.
Of this amount, SIBL will receive Tk 1,500 crore and FSIBL will be granted Tk 1,000 crore, all funded by printing money. This recent support follows an earlier liquidity injection in November 2024, when Bangladesh Bank provided Tk 22,500 crore to six distressed banks, including SIBL and FSIBL, to ensure depositors could access their funds.
Since the political shift in August, the total liquidity support provided to these troubled banks has reached Tk 29,410 crore, all financed through money printing. Initially, BB Governor Ahsan H Mansur opposed providing liquidity to these banks by printing money.
However, he reversed his position due to public backlash over the banks’ failure to return depositors’ money.
Out of the previous Tk 22,500 crore in liquidity support, FSIBL received Tk 5,500 crore, SIBL received Tk 4,000 crore, Global Islami Bank received Tk 2,000 crore, Union Bank received Tk 2,000 crore, EXIM Bank received Tk 5,000 crore, and National Bank received Tk 4,000 crore.
Except for EXIM and National Bank, the other four banks were under the control of the controversial S Alam Group, which allegedly misappropriated significant sums, worsening the financial crisis.
In addition, Bangladesh Bank provided liquidity guarantees amounting to Tk 6,585 crore to seven banks, including SIBL and FSIBL. S Alam Group has withdrawn approximately Tk 2.25 lakh crore from ten banks, including eight directly under its control, using both real and fictitious names.
The loans taken by S Alam and other major business groups are becoming non-performing, as these entities continue to default on repayments.
Non-performing loans (NPLs) in eight banks, including Islami Bank, which is controlled by the S Alam Group, rose by Tk 86,347 crore in just six months up to December, according to Bangladesh Bank.
In the past, boards of private sector banks tried to conceal defaulted loans, as reported by central bank officials. After the fall of the Hasina government in August, Bangladesh Bank dissolved the boards of 14 banks; including those controlled by S Alam, Salman F Rahman, and former land minister Saifuzzaman, removing them from power.
In the second half of 2024, the total defaulted loans in 12 of these banks increased by Tk 1.03 lakh crore, according to a report from Bangladesh Bank. Additionally, several of these weak banks have struggled to carry out operational activities due to a lack of funds.
Governor Mansur recently assured depositors that Bangladesh Bank would provide as much liquidity as needed to prevent any shortfall, emphasising that depositors’ funds remain secure. Although printing money can raise inflationary risks, the central bank plans to mitigate the impact by absorbing excess liquidity from banks with surplus funds.
This will be done through the issuance of government bonds to ensure that overall reserve money does not increase and that a contractionary monetary policy is maintained.
