Written by The Banking Post
Dhaka, July 15, 2025 – The vibrancy of Bangladesh’s call money market is steadily declining as rising concerns over trust and counterparty risk prompt well-capitalised banks to park their surplus funds in the Bangladesh Bank’s Standing Deposit Facility (SDF), despite its relatively lower returns.
Bankers and central bank officials say the shift reflects a deepening confidence crisis in the interbank lending system, with risk-averse banks increasingly opting for the safety of central bank facilities instead of lending to peers in need of short-term liquidity.
Recent data from the Bangladesh Bank shows that deposits in the SDF surged to Tk 727.30 billion in June 2025, a sharp 158% increase from Tk 282.22 billion in May. Meanwhile, transactions in the call money market fell by nearly 15%, from Tk 1.04 trillion in May to Tk 887.90 billion in June.
Despite higher yields available in the interbank market — with the weighted average rate (WAR) at 10.32% — many banks are avoiding call loans in favour of the SDF, which offers a comparatively modest return of 8.50%, the current floor of the interest rate corridor.
“This behavior is surprising given the strong demand for short-term funds,” a senior Bangladesh Bank official said on condition of anonymity. “The lack of confidence among banks is clearly affecting market dynamics.”
Foreign banks, in particular, are showing minimal interest in the call market and are instead parking funds in the SDF, according to officials.
The central bank had earlier planned to phase out the 14-day repo and assured liquidity support (ALS) for primary dealer banks, though implementation has not yet occurred. Once enacted, this could limit liquidity options further, potentially increasing reliance on interbank borrowing.
Banks typically access the call money market to manage liquidity mismatches, meet statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements, and respond to sudden funding needs. However, many smaller or liquidity-stressed banks are now struggling to secure funds, even when offering rates as high as 10.50%.
With limited access to interbank borrowing, these banks are being forced to turn to the central bank’s Standing Liquidity Facility (SLF), where the borrowing cost is significantly higher at 11.50%. This situation could lead to upward pressure on market interest rates and greater instability, warn industry insiders.
“The SDF has become a preferred destination for surplus funds because of the low-risk nature, but this behavior is indirectly increasing pressure on weaker banks,” said a treasury head at a private commercial bank, speaking anonymously. “If this trend continues, the interest rate regime could face serious volatility.”
He also cautioned against any immediate reduction in repo facility access, saying it could deal a further blow to banks already grappling with liquidity constraints.
Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, echoed these concerns, noting that many banks have significantly reduced their counterparty exposure due to prevailing market uncertainties.
“The boards of banks are now very cautious in selecting counterparts for short-term lending, which has directly impacted the call money market,” Rahman said.
Experts suggest the Bangladesh Bank should intervene to restore interbank confidence and encourage greater use of the call market to ensure stable liquidity flow across the banking system.
