Bangladesh Bank has recently directed the Securities and Exchange Commission (SEC) for boosting secondary bond market to meet the existing liquidity crisis of the banking sector.

A high official of BB on Wednesday said the cash flow will increase through more trading of bonds which could help overcome the fund crisis, also increasing share trading in bourses.

Some bankers said they are facing strong liquidity crisis as a large amount of funds, supplied to the government, were blocked.

BB statistics showed that government borrowed Tk 870 billion from different commercial banks up to February this fiscal.

“We are giving loan to the government for the periods of 5, 10, 15 and 20 years term, but government is giving us a so called bond just like a paper,” officials of the commercial banks said.

“On the other hand, government had formed secondary bond market for trading of the circulated bonds against loan. Now we could not exchanges the bonds as secondary market falls,” they added.

As per the BB’s statistics, bonds worth Tk 710 billion are lying in the commercial banks of the country.

But it was mandatory for the banks to deposit Tk 500 billion to the Central Bank, against their deposits. The highest interest rate of government Treasury bond is 9.75 percent. Most in most cases, bankers alleged, they are getting only 6 to 7 percent.

But Banks are collecting deposits at 14 percent interest rate to overcome the fund crisis, while taking short term loans from the call money market at an average interest rate of 20 percent, bankers said.

The central bank has directed the insurers to invest 30 percent of their funds to the bonds. At the same time, the central bank also suggested all financial institutions to invest a portion of their mutual funds to the bond market.

With increased investments from the insurers and FIs in line with the BB’s latest direction, the secondary bond market might see a boost, BB officials said.

The Daily Sun/Bangladesh/ 1st March 2012