The interbank call money market, a key avenue for short-term liquidity among banks, is now facing a significant slowdown as banks chose to park their idle funds with the Bangladesh Bank鈥檚 Standing Deposit Facility (SDF) instead.
According to the Bangladesh Bank data, total call money turnover in June stood at Tk 88,790.24 crore鈥攎arking a 14.61 per cent drop from May.
At the same time, banks鈥� usage of the SDF surged to Tk 72,730 crore in June鈥攁n increase of 157.71 per cent compared to Tk 28,222 crore in May.
The significant shift was puzzling as the weighted average rate (WAR) of call money remained high at 10.32 per cent in June, while the interest offered under the SDF was considerably lower at just 8.50 per cent, market analysts said.
This preference for a lower-yielding, but safer avenue suggests that banks are increasingly favouring security and regulatory compliance over returns, they said.
Bankers said that trust among banks has eroded due to growing concerns over rising non-performing loans (NPLs), governance issues, and stricter oversight from the central bank. In this environment, many banks are reluctant to lend even overnight to their peers. Instead, they are choosing to place their excess funds with the central bank, where the risk of loss is virtually zero.
The SDF, introduced under Bangladesh Bank鈥檚 interest rate corridor framework, is a tool that allows banks to deposit surplus funds with the central bank on an overnight basis.
The SDF mechanisms, though yielding lower returns, offer regulatory comfort and capital preservation, unlike the uncertain counterparties in the call money market.
Bankers said even the country鈥檚 large state-owned and private commercial banks鈥攐nce active lenders in the call market鈥攁re now avoiding it.
Some liquidity-strapped banks are finding it difficult to borrow money from other banks, even after offering rates as high as 10.50 per cent. In such cases, they are being forced to borrow from the central bank鈥檚 Standing Lending Facility (SLF), where the cost is even higher at 11.50 per cent.
If counterparty fears and regulatory pressures continue to deter interbank activity, the call money market may risk becoming dysfunctional鈥攍imiting its role as a barometer of systemic liquidity.
Bangladesh Bank reduced the SDF rate further to 8.00 per cent in early July鈥攋ust after the reporting period鈥攕uggesting that the central bank is aware of excess idle liquidity in the system and is trying to encourage banks to lend more actively in the open market.