BB relaxes banks’ investment rules
Bangladesh Bank yesterday relaxed rules regarding banks' investment in Treasury bills and bonds in order to help them avoid generating lower-than-expected profits in the secondary bond market.
Many banks now face lower profits than what they had expected as interest rates of T-bills and bonds have recently declined, creating an uneasy situation for the lenders.
Against this backdrop, the central bank increased the investment ceiling for banks on held-to-maturity (HTM) securities.
Banks have to keep HTM securities until maturity of the instruments, meaning that there is no scope to sell those in the secondary bond market.
There is another type of securities, which are held-for-trading (HTF).
Lenders have to sell the HTF in the secondary market as per the rules.
Banks have to segregate all their purchased T-bills and bonds in the two categories soon after investing their funds in the government securities.
The country's banking sector has faced pressure from excess liquidity, which has forced them to invest their idle funds in the instruments.
This has subsequently lowered the interest rate of T-bills and bonds.
For this reason, banks with HTF securities are facing losses, which is why the central bank has allowed banks to convert the instruments into HTM ones.
This means banks would get respite to sell the securities for the time being by way of avoiding taking part in the secondary market.
As per the new rules of the central bank, non-primary dealer banks will be able to hold 120 per cent of their respective statutory liquidity ratio instead of abiding by the existing limit of 110 per cent.
Primary dealer (PD) banks will be allowed to increase the limit to 135 per cent of the statutory liquidity ratio in contrast to 125 per cent.
Banks, however, will have to return to the existing ceiling by 2024 in phases.
The SLR is a percentage of deposits kept in the form of government securities.
Banks now have to keep 13 per cent of their total clients' deposits with the central bank.
The PD banks have to take part in the auction of the securities on a regular basis in order to provide required funds to the government.