A file photo shows activities inside a branch of Sonali Bank in Dhaka. The country’s fifteen primary dealer banks and non-banking financial institutions are facing severe liquidity crisis, as they have invested Tk 20,805.63 crore in treasury bills and bonds to facilitate government borrowings. — Focusbangla photo

The country’s fifteen primary dealer banks and non-banking financial institutions are facing severe liquidity crisis, as they have invested Tk 20,805.63 crore in treasury bills and bonds to facilitate government borrowings, said Bangladesh Bank officials.
A BB official said that investment of PD banks and NBFIs in the treasury bills and bonds has turned into idle assets as they failed to resell the bills and bond to individual persons or other institutions because of the absence of a secondary bond market.
A primary dealer is a bank or NBFI that trades directly with the central bank. Such institutions have to participate actively in government treasury securities auctions, he said.
These dealers purchase a vast majority of government treasury securities such as treasury bills and treasury bonds sold at auction and are supposed to resell them to other financial institutions and public, the official said.
According to the latest BB data, the fifteen primary dealer banks and NBFIs had an investment of Tk 20,805.63 crore in bonds and bills till February 24.
The highest interest rate on treasury bond is 12 per cent while the maximum interest rate on treasury bill is 11.25 per cent.
The PDs, however, get loan facilities against the investment of bonds from BB through liquidity support facility whose interest rate was 7.75 per cent per annum.
Another BB official said that some PD banks and NBFIs earlier applied to the central bank asking that they wanted to withdraw their name from the PD list.
He said that the secondary bond market in India was highly developed but it was not improved in Bangladesh as yet. 
A large amount of bills and bonds of PDs have become worthless asset causing liquidity pressure among the banks and NBFIs. For this reason, some PD banks and NBFIs applied for withdrawing their names from the list, he said.
The central bank, however, did not grant it, the official said.
A senior official of a PD bank said that if there had been an active secondary bond market, the PDs could have monitised their treasury bond investment keeping up with their fund position.
He said that the commercial banks had to keep 19 per cent Statutory Liquidity Reserve in BB against their liabilities.
As per requirement by BB, the PD banks and NBFIs kept a total of Tk 24,683.63 crore as SLR in the central bank fund, he said.
Under the circumstances, the PDs are facing an acute liquidity crisis due to continually increasing government borrowings from the financial institutions, official said.
Bank officials said they had been demanding for long for creation of an active secondary bond market as early possible.
Bangladesh Bank officials assured at a meeting with Bangladesh Leasing and Finance Companies Association executives on February 19, 2012, saying that they had already tried to create a secondary bond market in the country.
Nurul Amin, president of Association of Bankers, Bangladesh, told New Age on Monday that executives of PD banks and NBFIs had met with BB officials several times to solve the liquidity pressure on their institutions.
‘We recently issued a letter to the finance minister pointing out the prevailing liquidity crisis among the PD banks and NBFIs,’ he said.
Nurul Amin, also managing director of NCC Bank, said that his bank had invested around Tk 1,600 crore in treasury bills and bonds.
‘But we have failed to resell the instruments to the individual clients or institutions because of the lower interest rate on bills and bonds. As a result, the instruments turned into idle assets,’ he said.
The NCC Bank is one of the fifteen PD institutions.
The secondary bond market is prevailing on paper but it is thoroughly ineffective, he said.
‘The government on a number of occasions assured the banks that the bond market would be created as early possible. But the commitment is yet to be materialised,’ said Nurul Amin.   
The twelve PD banks are: Sonali Bank, Janata Bank, Agrani Bank, NCC Bank, Uttara Bank, Southeast Bank, Prime Bank, National Bank, AB Bank, Mercantile Bank, Mutual Trust Bank and Jamuna Bank. The three others PD NBFIs are: IPDC, Lanka-Bangla Finance and ILFSL.