The central bank has extended the timeframe of assured liquidity support (ALS) for the primary dealers (PDs) by 15 days to increase the cash liquidity in the market, officials said Wednesday.

Under the new provisions, the PDs are allowed to enjoy liquidity support against both success and devolved securities for a maximum of two and half months at a stretch from the date of issue of the government approved securities instead of two months.

"We've extended the liquidity support to the PDs considering the overall market situation," Executive Director of the Bangladesh Bank (BB) Sudhir Chandra Das told the FE.

He also said some Tk 10 billion-Tk 15 billion will be injected into the market as per the new provisions relating to ALS.

The central bank issued a directive in this connection Wednesday and asked the chief executives of all PD banks and financial institutions to follow the latest provisions of the ALS.

The central bank provided Tk 63.82 billion on the day to 13 PDs for one-day tenor as the liquidity support facility to meet their cash liquidity demand, according to the central bank statistics.

The PDs welcomed the central bank's latest move, saying that it would help them to meet the growing demand for cash liquidity to some extent.

"We had earlier requested the central bank to extend such liquidity facility for a maximum of at three months instead of two months," a senior member of the Primary Dealers Bangladesh Limited (PDBL) told the FE.

He also said 12 PD banks are now holding government securities worth around Tk 180 billion in excess of their statutory liquidity ratio (SLR) requirement with the central bank.

"The PDs have to comply with holding of the government securities against their underwriting obligation to the BB," the PDBL member said explaining the reason for holding the excess securities.

He also said normal banking business of the PDs is being seriously hampered due mainly to immense underwriting obligation relating to the government securities.

"Our short-term and long-term business growth plans are being hampered seriously due to substantial growth of the government securities," he said, adding that it's also creating problems in cash liquidity and cash flow forecast that, in turn, is also affecting day-to-day operational and investment activities.

The central bank earlier selected 15 PDs - 12 banks and three non-banking financial institutions (NBFIs) - to deal with the government-approved securities in the secondary market.

The PDs are required to subscribe and underwrite primary issues and can make secondary trading deals with two-way price quotations. But the secondary market in the country for such bonds and securities has not been developed yet and the volume of trading in such a very rudimentary market is very insignificant now.

Financial Express /Bangladesh/ 23th Feb 2012