Govt borrowing from banks on rise again as liquidity crunch eases

The government's borrowing from banks is increasing again as lenders' liquidity crunch has eased, mainly due to various programmes undertaken by the central bank to boost the flow of money.

In February this year, banks invested Tk7,844 crore in government treasury bills and bonds, compared to Tk5,722 crore in the previous month of January, according to a report from the Bangladesh Bank.

According to bankers, the lenders needed a huge amount of money to maintain their cash reserve ratio (CRR) and statutory liquidity ratio (SLR) during their year-end closing, so they invested smaller amounts in government securities at that time. Now that the pressure has reduced, banks have increased the amount of loans they make to the government.

They further said that the central bank's various pre-finance and refinance schemes have increased the liquidity supply to the banking sector.

According to data from the Bangladesh Bank, the government increased borrowing from the central bank for six consecutive months from July to December of the current fiscal year to meet the budget deficit. At the same time, instead of borrowing from scheduled banks, the government made more payments against its previous loans.

The total borrowing from the central bank until February 2023 is Tk45,437 crore. However, as of February, the government has repaid Tk4,044 crore to banks.

According to the data, the government borrowed Tk1,598 crore from scheduled banks in July of the current financial year. And instead of borrowing, the government repaid Tk1,602 crore in August and Tk3,514 crore in September to banks. In October, however, the government again took a fresh loan of Tk190 crore from banks.

Again in November, the government repaid Tk14,128 crore. Besides, up to 22 December, the government repaid Tk4,314 crore. At the end of December 2022, the government's total outstanding loan from banks stood at Tk196,608 crore.

However, the government's bank borrowing started increasing again in January 2023. And at the end of February, the government's total outstanding loans from banks amounted to Tk210,274 crore.

Seeking anonymity, a treasury department official at a government bank said that although several Islamic banks in the country are in a liquidity crisis, most foreign, public, and private banks have liquidity surpluses. With that money, they are now investing in government bills and bonds. However, there was some liquidity crunch from October to December last year due to December's closing and buying additional dollars.

The government has set a borrowing target of Tk106,334 crore from banks to cover the budget deficit for the current fiscal year. Of this, Tk41,392 crore have been borrowed in the eight months from July-February of the financial year, which is 34.92% of the target.

A central bank official said the government borrowed from the central bank at a lower rate than the rate banks were asking for Treasury bill bonds in the final few months of last year. Now the banks have less pressure to maintain CRR and SLR, so they are giving new loans to the government.