Written by The Banking Post
Dhaka, July 19:
Bangladesh’s commercial banks borrowed a record Tk 1.45 trillion from the central bank in June 2025 through the repurchase (repo) facility, underscoring the severity of the ongoing liquidity crisis in the country’s banking sector.
According to the latest data from Bangladesh Bank (BB), the amount represents the highest-ever monthly borrowing under the repo instrument, with around 75 percent of the funds taken under 14-day tenures. The remaining Tk 275 billion and Tk 91.05 billion were borrowed under 7-day and overnight maturities, respectively.
The sharp rise in repo borrowing highlights the banks’ struggle to meet their short-term liquidity needs, driven by slow deposit growth, mounting non-performing loans (NPLs), and increased government borrowing to cover fiscal deficits.
Bankers and money market analysts point to multiple causes behind the liquidity shortfall, including weak public confidence in the banking system following widespread loan irregularities that came to light after the July–August mass movement that toppled the previous government.
A senior official at the central bank, requesting anonymity, said: “The liquidity stress is structural. Deposits are not growing as expected, and NPLs have surged to Tk 4.20 trillion—nearly one-fourth of total loans worth Tk 17.13 trillion as of March 2025.”
He added that banks now have little option but to depend heavily on the BB’s repo window to bridge the growing mismatch between credit and liquidity.
In the three months preceding June, repo borrowing was also high—Tk 1.33 trillion in May, Tk 940 billion in April, and Tk 838 billion in March—indicating a deepening reliance on central bank liquidity.
Despite the facility being designed for short-term cash requirements like maintaining the cash reserve ratio (CRR), several banks have allegedly been diverting repo funds into long-term government securities to earn higher yields amid a sluggish economy. This practice, analysts warn, is contributing to downward pressure on treasury bill and bond yields.
A treasury head at a leading private bank commented, “Banks are required to maintain 4.0% CRR—around Tk 750 billion—with the central bank. But borrowing Tk 1.45 trillion signals a far more serious liquidity crisis. If the central bank halts repo access even for a few weeks, many banks could face collapse.”
He criticized the central bank’s move to restrict repo operations under International Monetary Fund (IMF) conditionalities. As part of ongoing reforms, the BB has already reduced the repo window from a daily facility to once a week and phased out the 28-day repo. The 14-day facility is also set to be discontinued from October this year.
Government borrowing has also added to the strain. In FY25, the government borrowed roughly Tk 1.24 trillion from the banking system, although it repaid over Tk 300 billion to the central bank against previous liabilities.
Deposit growth, meanwhile, continues to slow. As of April 2025, deposit growth stood at just 8.21 percent—down from over 12 percent three years ago.
With credit demand outpacing deposit inflows and confidence in the system weakening, experts warn that the banking sector faces a prolonged period of stress unless structural reforms are introduced to restore stability and discipline.
