No liquidity crisis: BB reaffirms

Posted by BankInfo on Mon, Jan 10 2011 07:05 pm

Bangladesh Bank has dismissed the Securities and Exchange Commission's claim that there is a shortage of liquidity in the market.

"We don't want to lock into a blame game, but some quarters are spreading wrong information about the central bank in the market," Bangladesh Bank deputy governor Nazrul Huda told a press briefing at its conference room on Monday.

SEC chairman Ziaul Haque Khandkar at a press briefing at his office on the same day said the market was going through a 'liquidity crunch'.

Both the press conferences were held on the heels of share market's biggest-ever fall in its history.

"There is enough liquidity in the market and the Bangladesh Bank has injected three times more money into the market than the amount it withdraws as CRR (cash reserve ratio)," Nazrul Huda said.

The central bank has increased cash reserve requirement by 0.5 percentage point with effect from December 15 and it mopped up about Tk 20 billion from the market due to that.

"It's totally wrong information that the market is experiencing liquidity shortage due to increase in CRR," he said.

"Money and capital markets are two different 'markets' and the Bangladesh Bank is responsible for money market while the SEC is responsible for the capital market," he explained.

"But we cannot sit idle considering the gravity of the issue and we sat with scheduled banks today (Monday) to discuss it," he said.

"The central bank has assured the banks that it will not deal harshly with the banks which have exceeded the single borrower exposure limit," he said.

According to regulation, a bank cannot give loan which is over 15 percent of its capital meaning if a bank has Tk 100 capital, it can give maximum Tk 15 as loan to a single borrower.

"Some banks have violated the rules and we'll handle it in a relaxed manner," Nazrul said.

"We've also asked the banks to provide information about their exposure to the capital market and they can adjust the exposure if they cross the legal limit," he said.

The Bank Company Act stipulates that a bank cannot invest in the capital market 10 percent of its total liabilities. Liabilities comprise total deposit and capital.

Nazrul said the central bank sought investment information from the banks in 2009 but 'in fact we became villains."

Deputy governor Ziaul Hasan Siddique said the banks have Tk 9.14 billion excess reserve with the central bank, which means its completely idle money.

Earlier, Association of Bankers, Bangladesh president Mahmood Sattar, chairman of Primary Dealers' Association Anis A Khan and Sonali Bank managing director Humayun Kabir held a meeting with governor and three deputy governors.

After the meeting, Mahmood told journalists that institutional investors will start their operations in full swing as market has enough liquidity.

Anis Khan said his bank bought Tk 1 billion of shares on Sunday.

Humayun Kabir said price is declining and it is giving a signal to the market that it is good time to buy.

Source: Bangladesh/ Jan-10-2011