Shafiqul Islam Jibon

The state-owned commercial bank, Sonali Bank Limited (SBL), has appealed to the Bangladesh Bank (BB) to buy back a part of government securities, held by it, for strengthening its financial position.

"The SBL has asked the BB authorities Thursday last to provide it with at least Tk 40.0 billion through the buy-back facility involving government securities such as treasury bills and long-term bonds," a top management official of the SBL told the FE on the day.

"However, the appeal was made for the first time from a commercial bank in the country and the BB did not provide such a facility to any particular bank before," a senior official of the BB said.

"Anyway, the BB will scrutinise the importance of, and the need for, the proposed buy-back arrangement for the Sonali Bank," the BB official said.

The SBL's investment in government securities has exceeded Tk 132.05 billion as on September 25 last, which is more than double their required SLR (statutory liquidity requirement) as per the rules of the BB.

The required SLR of the SBL was Tk 67.45 billion on that particular day. Due to its excessive holding of government securities, the bank is facing liquidity constraints.

Against this backdrop, the Bank wants the BB to extend the latter's buy-back facility for government securities, up to an amount of, at least, Tk 40.0 billion on an urgent basis, so that the bank's financial position improves.

The SBL is also trying to restore its image through liquidity mobilisation after the recent massive financial scam involving the Hallmark Group came to light.

"The Bank currently has no extra-ordinary liquidity crisis. But it wants to take precautionary measures for any future volatility of its treasury management operation," the SBL official said.

Explaining the importance of the buy-back facility of government securities, the SBL official said the bank might slip into a critical situation if other banks suddenly stopped lending to it, particularly from the call money market, as the bank is now facing an image crisis due to the Hallmark loan scam.

"The bank is now looking for options to strengthen its liquidity position through the buy-back facility for government securities," he added.

The SBL's opening balance of cash money on September 25 last was Tk 34.49 billion. But its actual need was about Tk 65.48 billion including the CRR (cash reserve ratio) of about Tk 30.31 billion with the BB.

The Bank had to borrow money from the overnight market to the tune of Tk 35.92 billion including Tk 12.31 billion from the inter-bank money market (call money), Tk 6.38 billion under the ALS (assured liquidity support) and special repo of Tk 3.0 billion from the BB and Tk 2.75 billion from the inter-bank repo arrangement on government securities.

"If we had enough liquidity strength, then we would not have borrowed the money at higher rate of interest to meet our day-to-day demand and maintain the CRR with the BB," the SBL official also mentioned.

The rate of interest for call money, ALS, special repo and repo from inter-bank was 8.50 per cent, 7.75 per cent, 10.75 per cent and 8.15 per cent respectively on the day.

Now the Bank is also gradually becoming dependent on borrowing money from the inter-bank money market, as its own liquidity position is not favourable to meet its day-to-day requirement.

News: The Daily Financial Express/Bangladesh/29-Sep-12

Bangladesh Bank Governor Dr. Atiur Rahman seen at a discussion on ‘The Impact of the Financial Crisis on the SME Sector and Potential Policy Responses’ in the Global Policy Forum 2012 in Cape Town Friday.

News: The Daily Sun/Bangladesh/29-Sep-12

Commercial banks yesterday vowed not to embark on aggressive sell-offs, cited as one of the major reasons behind the market crash of last year.

“We have urged the banks not to adopt such tactics when the market is on the up, and they have assured us they will not,” Rakibur Rahman, president of Dhaka Stock Exchange, said after a meeting with the Association of Bankers, Bangladesh (ABB).

“Of course, the banks will make profits, but the share sale should not be in a disruptive manner,” he added.

Aggressive sell-offs, essentially, is the sale of a bulk amount of securities to book large amount of profits, a tactic which banks and other institutional investors adopted between 2009 and 2010, when the market was experiencing a bull run.

Rahman said the market is slowly inching towards stability, and the institutions' active participation at this moment could not be more important.

“But any aggressive sell-offs [by the institutions] may destabilise the market again,” he said.

Nurul Amin, president of the ABB, a platform of chief executives of Commercial banks, said they sat with the premier bourse to find out ways to make the secondary market more stable.

“We are not traders. We are long-term investors and we are maintaining our investment in the secondary market in line with the regulatory limit,” said Amin, also the managing director of NCC Bank.

The ABB chief also suggested the Dhaka Stock Exchange (DSE) take steps to activate the bond market.

The DSE president urged the retail investors to take investment decision wisely, instead of emotionally.

“Only those who have knowledge and ability should come to the market,” he said.

News: The Daily Star/Bangladesh/29-Sep-12

The IMF may defer the disbursement of the second instalment of its $1 billion loans for Bangladesh if the government does not fulfil all the related conditions, the lender said.

An IMF mission conveyed this message to the government as some of the major conditions were not met yet.

The team left Dhaka yesterday after reviewing the implementation of the conditions and holding talks with the government for two weeks.

The second instalment or $141 million was supposed to be released by November.

A finance ministry official said the team of the International Monetary Fund expressed dissatisfaction at the amended draft of the VAT law and Banking Company Act.

The lender earlier approved $987 million for Bangladesh to help it overcome macroeconomic pressures and build a buffer reserve.

Bangladesh received one of the seven instalments last year.

According to officials, the IMF mission found major differences in the draft of the VAT law amendment proposal given to them and the one placed in parliament. They expressed serious concern about it.

The proposal was first placed in a cabinet meeting in March for further review.

Later a committee was formed with the Prime Minister's Economic Affairs Adviser Mashiur Rahman as its head to further scrutinise the proposal.

On the basis of the recommendations of this committee, the proposal was again placed in the cabinet in July and it was approved.

Later the draft amendment to the VAT law was placed in parliament, which sent the draft to the parliamentary standing committee on the finance ministry.

The finance ministry official said the original draft to the amendment kept VAT at 15 percent in all stages of value addition but the rate was 5 percent in some cases in the final proposal.

The IMF also objected to another provision, which said the government may give VAT exemption to different sectors for public interest.

In case of the Banking Company Act, the lender wanted the government to cut the authority of the Banking Division and give more power to Bangladesh Bank.

According to the existing banking company law, the BB cannot exert full control over the state-owned banks.

The central bank can only dismiss the higher management and board members of the private commercial banks, but in case of state banks, the BB has no such power.

In such cases, the central bank can only advise the government. But when any irregularity takes place in the public sector banks, the BB has to shoulder the blame.

The IMF recommended amendment to this law to increase the central bank's power.

The IMF told the government that they will not release the loan on time if the VAT law and the banking company act do not get passage in parliament by November incorporating the recommendations, according to the official.

The government will request the lender to waive a condition about the exposure limit of commercial banks in the stockmarket.

Earlier the IMF asked the government to keep such an exposure limit of a bank at 25 percent of its total capital.

But the government wants the exposure limit to be at 40 percent of a bank's total capital. The existing exposure limit of a bank is 10 percent of its deposits.

The official said the IMF did not give any consent to the government's request, but if the overall reform programme remains satisfactory the lender may entertain the request.

Before getting each of the six equal instalments, the government will have to fulfil a set of conditions of the Washington-based lender.

The government by this December has to meet 11 more conditions.

The IMF imposed another condition that the government cannot make hard-term borrowing beyond $1 billion. The government will not need to cross the limit by December. But the government's various requirements next year may need around $3 billion.

The finance ministry official said the government plans to issue $750 million worth of sovereign bonds in the international market.

Besides, the government's guarantee for the private sector power producers will require about $2 billion next year.

The official said the government has requested the IMF to increase the limit of hard-term borrowing for next year. The IMF has hinted that the limit could be raised to $1.5 billion.

News: The Daily Star/Bangladesh/29-Sep-12

Banks will remain open tomorrow to help people pay their taxes, according to a Bangladesh Bank circular issued yesterday.

The order for all major branches of banks at districts and divisional cities came following a request from the National Board of Revenue.

The revenue authority will also keep tax offices open to give taxpayers one more day to submit their returns.

The move comes as the deadline for tax return submission ends on Sunday, while many taxpayers are yet to submit returns facing difficulties in finding their respective tax circles.

Taxpayers faced troubles after the NBR expanded its tax circles to 649 from 303 by increasing its zones to drive more people into the tax net.

The tax offices will remain open from 9am to 5pm tomorrow. The offices will also stay open until Sunday evening.

News: The Daily Star/Bangladesh/29-Sep-12