Dhaka, Bangladesh (BBN) - The central bank of Bangladesh has introduced a balanced policy for scheduled banks investing in government securities aiming to shift the liquidity pressure from the primary dealer (PD) banks to non-PD ones.
Under the new policy, the government treasury bills (T-bills) and bonds will be distributed among the PD and non-PD banks at a certain ratio. The PDs will have to receive 60 percent of the notified amount of investments in such tools while the non-PDs must accept the remaining 40 percent.
"We hope the new policy will help ease the liquidity pressure on PD banks gradually," Bangladesh Bank (BB) Executive Director Sudhir Chandra Das told the FE.
He also said the non-PD banks would be eligible for the liquidity support from the BB under the new policy.
The central bank issued a circular in this connection Tuesday and asked all scheduled banks to maintain the distribution ratio on investments in government securities.
The new policy will come into effect from August 1 this year, according to the circular.
The BB's latest move came against the backdrop of excess liquidity worth around Tk 240 billion held in government securities by 12 PD banks after maintaining their statutory liquidity ratio (SLR) with the central bank, which has created a liquidity pressure on the commercial banks.
Of the 60 per cent quota for PD banks, they will have to underwrite 30 per cent of it at the primary auction as per their Total Demand and Time Liabilities (TDTL), generally known as the size of their balance sheets.
The remaining 30 per cent will be distributed equally among the 12 PD banks without any auction.
The cut-off price of the total notified amount will be fixed on the basis of primary auction, according to the new policy.
On the other hand, the other 40 per cent of the notified amount of investments in government securities will be distributed among 25 non-PD banks as per their TDTL without any auction.
The central bank selected 15 PDs-12 banks and three non-banking financial institutions (NBFIs)-to deal with the government-approved securities in the secondary market.
Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government borrowing from the banking system. They are 91-day, 182-day and 364-day T-bills.
On the other hand, four government bonds with 5-year, 10-year, 15-year and 20-year tenures are being traded in the market.
BBN/SSR/AD-25July12-10:51 am (BST)
