Five crisis-hit banks secure BB guarantee for liquidity

Five crisis-hit banks have obtained a Bangladesh Bank (BB) guarantee to avail liquidity support from the inter-bank money market, according to central bank officials.

First Security Islami Bank, Global Islami Bank, Social Islami Bank and Union Bank signed agreements with the central bank yesterday while National Bank signed on Thursday.

Following the installation of an interim government in August, all five commercial lenders saw their boards of directors reconstituted.

"We signed an agreement with the central bank for the guarantee and it will take three to four days to get the liquidity support," said Mohammad Forkanullah, managing director (acting) of Social Islami Bank.

In this regard, Forkanullah said Social Islami Bank had already approached some state-run banks.

Recently, a total of seven restructured banks applied for the BB guarantee after new central bank Governor Ahsan H Mansur hinted at taking the step.

The BB governor said the central bank would not provide liquidity support by printing money like in the past but would instead provide the scope for lenders to seek support from the inter-bank money market.

Of the seven lenders, Islami Bank Bangladesh applied for BB guarantee asking for Tk 5,000 crore in liquidity support; Social Islami Bank for Tk 2,000 crore; First Security Islami Bank for Tk 7,900 crore; Union Bank for Tk 1,500 crore; Global Islami Bank for Tk 3,500 crore; National Bank for Tk 5,000 crore; and Exim Bank for Tk 4,000 crore.

Speaking to The Daily Star on condition of anonymity, a senior central bank official said the BB would not approve guarantees against the amount of liquidity support that has been sought.

Rather, guarantees will be issued on a case-to-case basis.

According to the official, the central bank will also sign deals with the other two banks namely Islami Bank Bangladesh and Exim Bank.

NINE CONDITIONS IMPOSED

The central bank imposed nine conditions in the agreements with the five commercial lenders.

According to the terms, the banks will have to pay a 0.25 percent guarantee fee on the guaranteed amount.

The guarantee covers a period of three months on a case-to-case basis, while the loans will have to be paid back with profit after maturity.

Under the agreement, once the loans are repaid, the lenders will be able to take loans for another three months and the total tenure of this rollover will be one year.

In case of a failure to repay by the crisis-hit banks, the liquidity provider banks can create 90 days' tenure of forced loans in the name of the borrowing banks.

Against the liquidity support, the profits or interest will be imposed at the existing special liquidity facility (SLF) rate.

The BB will be able to deduct funds from the concerned lenders' current accounts with the central bank in case of failure to repay the loans on time, as per the agreement.

An additional 2 percent interest or profit will be imposed on the SLF rate if the loans are not repaid on time, it said.

If the BB fails to recover funds from the borrowers' current accounts, it will recover cash by selling the bank's permanent assets, bonds and other securities.

The concerned banks will have to provide information and required documents to the central bank if needed and the BB can change the guidelines of the guarantee, as per the agreement.

Chattogram-based S Alam Group had dominated the board of directors at most of the banks that are now facing liquidity crises. The central bank recently removed the group's representatives from the boards of the lenders.