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Bangladesh central bank offers long-term repo to ease liquidity

  • Bangladesh Bank launches a special 360-day repurchase agreement to support liquidity in the money market

  • The margin will be 15% on treasury bills and 5% on treasury bonds, and proceed can be used in stimulus implementation

  • Currently, banks can borrow for a maximum 28 days and the outstanding borrowing amount is BDT100bn (on our calculation)

Bangladesh central bank offers long-term repo to ease liquidity
Shopnil Paul
Shopnil Paul

Research Associate

IDLC Securities
15 May 2020
Published byIDLC Securities

Bangladesh Bank (BB), the central bank of Bangladesh, has introduced a special 360-day repurchase agreement. The purpose of such an arrangement is to provide liquidity support in the banking system to effectively implement the recently announced stimulus package in the wake of Covid-19.

Similar to other countries, the Bangladesh government has announced a BDT1tn (US$11.8bn) package, equivalent to 3.3% of GDP, to stimulate the economy reeling from the immediate impact of the pandemic. Of the BDT1tn stimulus package, BDT807.5bn (US$9.5bn) is credit facilities announced for businesses, which will be disbursed through the banking channel. 

Central bank policy support

To ensure the implementation of this stimulus package, BB has been offering different policy supports to the banking system. So far, the central bank has stepped in with:

  1. Extending Refinancing Schemes worth BDT573.5bn(US$6.8bn)
  2. Cutting Cash Reserve Ratio (CRR) by 150bps (biweekly CRR to 4% from 5.5%)
  3. Lowering the Repo Rate by 75bps (to 5.25% from 6%)
  4. Decreasing the Advance to Deposit Ratio (ADR) by 200bps (from previous 87% to 85%; for Islamic banks IDR from 92% to 90%) 
  5. Introducing the 360-day Special Repo Facility 

Long term repo details: 

  1. Banks and FIs can collect funds through the repo in exchange for government securities held in excess of the statutory liquidity requirement (SLR). 
  2. It will be considered as a collateralised repo. 
  3. The transactions will have a 15% margin on the face value of treasury bills and a 5% margin if the pledged security is treasury bond. 
  4. The fund collected through repo financing can only be used to extend credit from the stimulus package. 

Historical details: 

  1. Earlier banks could borrow for a maximum of 28 days through this repo financing window. Besides, banks could borrow for 90 days through repo financing for special stock market investment fund creation. After the introduction of this new window, any bank would be able to borrow for a 1-year period. 
  2. Based on our market insight, the current outstanding bank borrowing through repo financing is BDT100bn (there is no official report on this). Note that more than 90% of financing is through 1-day and 7-days repo. 
  3. According to the latest Bangladesh Bank data, Bangladeshi scheduled banks can hypothetically borrow BDT1,034bn as of January 2020.