Bangladesh Bank provides Tk 22,000cr in emergency funding to 7 banks.
In an effort to strengthen seven struggling banks—five of which are Islamic banks—before the year ends, the central bank has granted emergency funding totaling Tk 22,000 crore to them.
The tbc24.net has learned from Bangladesh Bank officials briefed on the processes that on December 28, Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Global Islami Bank, Union Bank, Padma Bank, and National Bank took the fund for three days at a 9.7 percent interest rate.
Since the banks were unable to provide any securities as collateral, the monies were taken against a “demand promissory note.”
A demand promissory note is a legally binding document that is signed by both the borrower and the lender. By signing this contract, the borrower commits to paying back the loan as soon as the lender requests it.
When a bank is unable to deliver bills and bonds as a guarantee, the BB will accept a demand promissory note as security.
“Providing loans against demand promissory note is a normal practice,” said BB spokesman Md Mezbaul Haque.
Banks can borrow from the central bank against the promissory note for 180 days at most, he added.
But based on BB officials, the unusual facility was extended to assist the banks in making up the difference in their required cash and liquidity holdings and present a clean balance sheet for the year.
The officials stated that the confidence of depositors in banks will be severely damaged if their balance sheets at year-end demonstrate a deficiency in their regulatory cash and liquidity holdings.
According to managing director Tarek Reaz Khan, Padma Bank, previously Farmers Bank, received emergency loans from the central bank on Thursday in order to cover the shortfall in regulatory cash holdings.
He continued, “The fund has been held by the bank for three days.”
According to BB authorities, the urgent liquidity support given to the Shariah-based banks—in which the Chattogram-based conglomerate S Alam Group maintains large stakes—is not intended to cover the banks’ financial account imbalances with the central bank.
A BB letter to the managing directors of the lenders on November 28 states that the current accounts of Islami Bank, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank have been in deficit for a considerable amount of time.
Twenty working days were granted to the banks to make up their shortfalls.
According to BB authorities, only First Security Islami Bank remains in deficit, and the bank has been granted three months by the central bank to resolve the negative balance.
The managing director of Social Islami Bank, Zafar Alam, stated that the bank’s current account with the BB is no longer in deficit but he declined to comment on the extraordinary lending support provided by the central bank.
The executive director of the Policy Research Institute of Bangladesh, Ahsan H. Mansur, stated that the banks’ boards have to be changed prior to providing any liquidity support.
The National Bank’s board was reformed by BB on December 21.
The significant liquidity support that those institutions require at this time is due to the absence of accountability. The interests of the depositors must come first for the banking regulator to attempt to save the banks. “The Bangladesh Bank is not in the business of giving away people’s money in this manner,” added Mansur, a former BRAC Bank chairman.
