Dhaka, Bangladesh (BBN)– The central bank of Bangladesh is going to impose bar on banks from issuing or providing any guarantee for commercial papers (CPs) to avert to possible risks involving such money market instruments.
“We’ve decided that the banks would not issue the CP in any form or provide any guarantee for the short-term securities,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
He also said the banks will be allowed to invest in the CPs for enhancing credit to CP issuers with acting as an issuing and paying agent (IPA).
IPA means a bank that delivers CPs to the investors against the proof of payment and at maturity repays the investors after receiving funds from the issuer.
The central bank earlier formed a committee, headed by a deputy general manager of the Banking Regulation and Policy Department (BRPD), for preparing a draft guideline on the CP for the banks.
The committee has already submitted its draft guidelines on the CP to the authorities concerned for consideration.
“We’re expecting that the guidelines on the CP for the banks with would issued by the end of this month,” a senior member of the committee said.
The non-banking financial institutions (NBFIs) are now allowed to issue the CP for meeting their liquidity requirements, another BB official explained.
Currently, the NBFIs are not allowed to receive demand deposit like the banks and are not permitted to receive term deposits of less than three months.
“For this, they (NBFIs) face difficulties to meet short-term demand for fund frequently,” the central banker noted.
Earlier on May 29 last, the central bank of Bangladesh issued guidelines allowing the NBFIs to collect fund from banks, corporate entities and other NBFIs through issuing the CP.
The CP is a short term money-market security issued or sold by usually large corporate entities for funding operating expenses as well as current assets such as account receivables and inventories.