Banks will face trouble in implementing the government's Tk 72,500 crore bailout package due to their ongoing liquidity crunch that has been compounded by the coronavirus pandemic.
Of the total amount of the rescue packages, banks will provide Tk 30,000 crore in loans from their own resources to the businesses. The interest rate on the loans would be 9 per cent, of which the borrowers will provide 4.5 per cent and the government the rest.
In another package, the government will provide Tk 20,000 crore as working capital to the small and medium industries. The clients would be footing 4 per cent of the 9 per cent interest on the loans.
This means a total of Tk 50,000 crore will have to be provided by banks to implement the package.
The initiative taken by the government is an excellent effort to resolve the crisis, but banks have been given the short end of the stick, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
"Lenders are struggling to ensure profit as it is. And now, there is a chance that a portion of the loans from the bailout package would enter the defaulted zone. This will put extra pressure on banks."
The Bangladesh Bank should form fresh refinance schemes to implement the financial package, said Rahman, an immediate past chairman of the Association of Bankers, Bangladesh, a forum of bank managing directors.
Besides, the BB should cut the statutory liquidity ratio (SLR), cash reserve ratio (CRR) and policy rate to help banks, he said -- a suggestion that AB Mirza Azizul Islam, a finance adviser to a caretaker government, are on board with.
However, another bank MD preferring anonymity said the BB should ponder much before cutting the SLR and CRR as the tools are designed to give protection to depositors.
"The BB should rather explore new avenues to resolve the crisis," he added.
On March 23, the central bank made funds cheaper for banks by reducing the policy or repurchase agreement rate (Repo) by 25 basis points to 5.75 per cent.
It also cut the CRR by 50 basis points to 5 per cent, injecting about Tk 6,400 crore into the economy.
The BB should relax the loan-deposit ratio as well, Rahman said.
Against the backdrop, the governing body of the ABB will arrange a meeting today to explore avenues on how to address the issues, said another managing director of a bank.
The government has also declared a package of Tk 5,000 crore for exporters, but lenders have been in confusion over the terms of condition of the programme, he said.
The central bank will deduct funds from the current account of the respective banks with the BB even if the exporters fail to repay the loan instalments.
Lenders will have to keep provisioning against the defaulted loans, which will create a problem for them, the MD added.
Banks will not feel encouraged to give out the loans as the government will not share the credit risk, said Ahsan H Mansur, executive director of the Policy Research Institute.
If the government gives a commitment to bear the losses of the defaulted loans under the package, banks will show interest in disbursing the loans, he said.
The central bank should take quantitative easing (QE) promptly to supply available cash or else the banking sector will be unable to implement the bailout package.
Under QE, the BB will purchase the excess Treasury bills and bonds from banks. At present, banks have about Tk 100,500 crore extra in the form of T-bills and bonds.
Islam echoed the same.
Asked how the central bank would give support to banks for implementation of the bailout package, its spokesperson Md Serajul Islam said the BB was awaiting instructions from the finance ministry.