Five crisis-affected banks have secured a Bangladesh Bank (BB) guarantee to access liquidity support from the inter-bank money market, as confirmed by central bank officials.
First Security Islami Bank, Global Islami Bank, Social Islami Bank, and Union Bank signed agreements with the central bank yesterday, while National Bank completed its agreement on Thursday.
Since the establishment of an interim government in August, the boards of directors of all five banks have been restructured.
“We have 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, the acting managing director of Social Islami Bank. He mentioned that Social Islami Bank has already reached out to several state-run banks regarding this matter.
Recently, a total of seven restructured banks sought the BB guarantee following comments from new central bank Governor Ahsan H Mansur about taking such action.
The BB governor noted that the central bank would not provide liquidity support through money printing as in the past but would allow lenders to seek support from the inter-bank money market.
Among the seven banks, Islami Bank Bangladesh requested a BB guarantee for Tk 5,000 crore in liquidity support; Social Islami Bank for Tk 2,000 crore; First Security Islami Bank for Tk 7,900 crore; Union Bank for Tk 1,500 crore; Global Islami Bank for Tk 3,500 crore; National Bank for Tk 5,000 crore; and Exim Bank for Tk 4,000 crore.
A senior central bank official, speaking anonymously to The Daily Star, indicated that the BB would not approve guarantees for the full amount of liquidity support requested. Instead, guarantees would be issued on a case-by-case basis.
The official also mentioned that the central bank is expected to sign agreements with the other two banks, Islami Bank Bangladesh and Exim Bank.
NINE CONDITIONS IMPOSED
The central bank has established nine conditions in the agreements with the five commercial banks receiving liquidity support.
According to the terms, the banks must pay a guarantee fee of 0.25 percent on the guaranteed amount. The guarantee is valid for three months on a case-by-case basis, with loans required to be repaid with interest after maturity.
Once the loans are repaid, lenders can borrow again for an additional three months, allowing for a total rollover period of one year. If any of the crisis-hit banks fail to repay, the liquidity provider banks may initiate a forced loan with a tenure of 90 days in the name of the borrowing banks.
The interest rates for the liquidity support will be based on the existing special liquidity facility (SLF) rate. The BB has the authority to deduct funds directly from the defaulting banks’ current accounts if they fail to repay the loans on time.
If repayments are late, an additional 2 percent interest or profit will be added to the SLF rate. Should the BB be unable to recover funds from the banks’ accounts, it can recover cash by liquidating the banks’ permanent assets, bonds, and other securities.
The affected banks are also required to provide necessary information and documentation to the central bank as needed, and the BB reserves the right to amend the guidelines of the guarantee.
The Chattogram-based S Alam Group had previously dominated the boards of directors at most of the banks currently facing liquidity issues. The central bank has recently removed the group’s representatives from these boards.
