Bangladesh Bank (BB) has asked sound banks with excess liquidity to lend to crisis-hit banks facing severe liquidity shortages, in the best interests of the country's banking sector.

The central bank's instruction came during a meeting between Bangladesh Bank Governor Ahsan H Mansur and managing directors and CEOs of a portion of sound lenders yesterday.

Chief executives of Eastern Bank, Mutual Trust Bank, City Bank, BRAC Bank, Dhaka Bank, Pubali Bank, Shahjalal Islami Bank, Sonali Bank and Dutch-Bangla Bank were present at the meeting.

A managing director of a private bank who attended the meeting told The Daily Star that the BB governor assured them that banks would get back their money from those crisis-hit lenders as the central bank would act as a guarantor.

"Now we will take a decision in our board of directors meeting about how much to provide to them and will inform the central bank," said the MD.

To manage liquidity for crisis-hit banks, the central bank has already signed agreements with five lenders—First Security Islami Bank, Global Islami Bank, Social Islami Bank, Union Bank and National Bank.

After yesterday's meeting, Bangladesh Bank Executive Director and Spokesperson Husne Ara Shikha told reporters that the central bank met with 10 banks which agreed to support the lenders that were facing current account deficits with the central bank.

As per the agreement with the five banks, the banks will have to pay 0.25 percent of the amount as a guarantee fee to the central bank.

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 any crisis-hit bank fails to make a repayment, the liquidity provider can create 90-day tenure-forced loans in the name of the borrowing banks.

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

The BB will be able to deduct funds from the current accounts of the lenders concerned if they fail 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, as per the agreement.

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

Recently, a total of seven restructured banks applied for the BB guarantee for around Tk 29,000 crore liquidity support after new central bank Governor Mansur hinted at providing liquidity support.

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.