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