THE trouble-mired commercial banks are on the road to insolvency in terms of reserves as Bangladesh Bank (BB) is purchasing dollars from the banks in exchange for long-term maturity bonds instead of paying cash. As the remittance flows are coming in an incessant trend and dollars are being accumulated in the accounts of the commercial banks overflowing their ceiling of dollar reserves — around 15% of total reserves, it compelled the banks to sell excessive dollars in the inter-bank call money market. Though the demand of dollars is weak in the call-money market due to an over-abundance of remitted dollars, sluggish investment levels and a decrease of imports forced the banks to exchange dollars with the central bank by buying 5-10 years long maturity bonds. The initiative of the central bank is considered as a threat of instability to the country’s banking sector as it puts an adverse effect on the banks and thus on the economy also.A vernacular daily carried a report said political stability and people’s government with good governance, accountability and stable economics are the prerequisites for attracting new investment. If political stability is assumed, businessmen will go for investment that can circulate the idle money and improve the economy. According to BB statistics, the central bank purchased around $92 crore from the call-money market during July 2 to August 14, this year and brought $515 crore from the commercial banks in the recently concluded fiscal year. The BB sources said they are exchanging bonds for dollars to limit the inflation rate, as an increase in money supply in the market contributes to inflation. For the last two years foreign currency reserves continued its unprecedented growth due to a rise in remittance inflows and falling imports. To address the problem, the central bank recently increased the ceiling of dollar reservation from $113 crore to $150 crore, which will help, as claimed by BB, to curtail money supply to the market. But the experts said it will not result in any good for the banks except to increase management costs.Experts said a decrease in import expenditures left excessive dollars idle in banks which prompted the central bank to take the undue opportunity that could make the banks plunge into trouble. The BB used to buy dollars from the non-Islami banks by exchanging a 30-day long maturity ‘BB Bill’, and a 60-day long maturity bond from the Islami banks. But, when the money supply to the market increased, the central bank followed the ill-motivated tactic of selling long-term maturity bonds. According to the long-term bond, the banks will get the payment of the now sold dollars after five or ten years when the bond will mature, trapping the banks’ reserve in BB accounts for long, resulting in insufficient reserves to meet the bank’s expenses.The new policy of the BB will push the banking sector into trouble as it traps a lot of money in BB’s account and according to bankers it will decrease their profits and reduce their ability to operate. The policy will further discourage the banks from collecting remittance and as a result the remitters will remit through illegal channels like ‘Hawala’ or ‘Hundi’, for this the country will lose a huge amount of revenue. We hope the central bank will consider their policy to revive the banking sector.
