Cash crisis to end for 5 banks as they receive liquidity support

Bangladesh Bank is providing liquidity support and is also giving guarantees to the banks providing loans

The cash crisis suffered by five banks that were unable to give money to customers after the government changeover looks set to end for the time being as Bangladesh Bank opens an opportunity for them to borrow money from other banks to meet their demand.

The central bank has approved the assistance for the five banks facing a liquidity crisis. Bangladesh Bank will also act as the 'guarantor' to these interbank loans.

Central bank officials say that though this liquidity support has been given to five banks currently in severe crisis, it can be extended to the other banks as well if they apply for it.

Bangladesh Bank spokesperson Husne Ara Shikha told bdnews24.com on Thursday that banks from which liquidity assistance has been sought will provide funds to the banks in crisis.

Initially, the central bank has given its approval to the signing of agreements on the matter and has sent letters to the five banks on Thursday, a senior official said.

The banks are the private sector National Bank, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank.

The banks were under the control of the S Alam Group, but after the fall of the Awami League government, their boards were dissolved and new boards were appointed that removed them from the group’s control.

Islami Bank and several others are also facing liquidity shortages, with eight banks seeking special loans, officials said.

Another official at Bangladesh Bank said that the financial condition of these five banks, which are riddled with various irregularities, is very weak because there is a severe liquidity crisis in these banks. If these banks borrow money through the inter-bank system, they can handle the cash needs of their customers and ease the liquidity crisis.

After the Awami League fell on Aug 5, various changes have been made to the banking sector.

New Bangladesh Bank Governor, Ahsan H Mansur stopped the liquidity support given to the Shariah-based Islamic banks of the S Alam Group under the special privileges of the governor during the previous government.

This led to a severe liquidity crisis at these banks. When information about the S Alam Group taking huge loans through irregularities came to light, customers hesitated to make new deposits at these banks. As a result, the customers of these banks could not make cash withdrawals.

Then Mansur instructed these banks to borrow money through the inter-bank system so customers could withdraw money and make transactions. For this, Bangladesh Bank would act as guarantor, he said.

In this regard, Bangladesh Association of Banks (BAB) Chairman Abdul Hai Sarker told bdnews24.com, "The liquidity crisis is not a problem in all banks. Some banks have problems. Banks that were sanctioned for political reasons have experienced a liquidity crunch. Many loans are granted subject to the approval of the board. In fact, the oligarchs destroyed the banks, so we are working with the governor to consult on how to fix these weak banks."

He said, "Efforts are also being made to bring in deposits. Because corruption has created distrust in these banks, trust must be restored, so more deposits will come. The deposit will actually turn around the banks.”