Cenbank to print Tk2,500cr more to support 2 troubled banks

Highlights

• Governor approves new liquidity support on Thursday
• Tk29,910 crore in loan provided so far
• 9 troubled banks given the loans
• Liquidity support by printing money can fuel inflation

The Bangladesh Bank has approved an additional Tk2,500 crore in liquidity support for the troubled Social Islami Bank and First Security Islami Bank by printing new money.

Governor Ahsan H Mansur approved the liquidity support on Thursday (13 March), sources at the central bank told TBS.

Liquidity support of Tk1,500 crore was provided to Social Islami Bank and Tk1,000 to First Security Islami Bank. With this additional money, the interim governor has so far extended support totalling Tk29,910 crore to weak banks.

Of the amount, Social Islami Bank received Tk5,500 crore and First Security Islami Bank got Tk6,500 crore. Additionally, National Bank was provided Tk5,000 crore, Union Bank Tk2,000 crore, Bangladesh Commerce Bank Tk200 crore, ICB Islami Bank Tk10 crore, Global Islami Bank got Tk2,000 crore, EXIM Bank Tk8,500 crore, and AB Bank Tk200 crore in loans. 

During Sheikh Hasina's government, the losses in the banking sector were hidden. However, towards the end of 2022, media reports began to emerge about loan fraud in various banks. As a result, customers started withdrawing their money from the banks, leading to a liquidity crisis. 

The banks failed to maintain the statutory cash reserve ratio with the Bangladesh Bank and hold government securities as a statutory liquidity ratio. Despite this, the then governor, Abdur Rauf Talukder, kept the banks afloat by providing various illegal benefits, one of which was offering liquidity by printing money and covering the deficit in current accounts.

Although the current governor, upon joining the central bank, had stated that no bank would receive loans by printing money, he was unable to stick to that promise. As the banks' crisis deepened, in November, loans amounting to Tk22,500 crore were provided to six banks. Subsequently, in January, Tk4,910 crore was provided, and yesterday, another Tk2,500 crore was approved. 

These loans were given to the banks without any collateral. Directly lending money to these banks by the central bank can lead to inflationary pressures, say economists.

In a press conference last November, the governor said, "I had said we would not print money. From that previous position, I have temporarily deviated, but not completely. The amount of liquidity we provide to struggling banks will be offset by issuing bonds of an equal amount in the market. 

"We will give money with one hand and take it back from the market with the other. Therefore, this process cannot be fully considered as printing money. The liquidity balance in the market will remain normal."

He also mentioned the introduction of 90-day and 180-day Bangladesh Bank bills to withdraw money from the market. 

The governor said, "The contractionary monetary policy will continue until inflation is brought under control. When money moves from one bank to another, we will offset it by issuing bonds, ensuring the overall balance of the economy and liquidity situation remains intact. 

"We are not stepping back from our efforts to control inflation. The new process will not cause any inconvenience to customers, nor will it allow the market to become unstable."

However, there has been no practical alignment with the governor's statement, as only Tk3,159 crore has been raised from the market in 10 auctions over the past two months.