Flash Report / Bangladesh

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 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 (USD9.5bn) 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.

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Macro Analysis / Bangladesh

Bangladesh Bank relaxes CRR requirement to improve liquidity

  • 200bps reduction in CRR requirement for offshore banking operation (OBO) unit will free cBDT4bn and lower funding costs
  • NBFIs also got policy support as CRR requirement reduced by 100bps; however, total SLR requirement unchanged at 5%
  • Non-listed companies income or sale repatriation made easier; interest rebate for good borrowers withdrawn
S. M. Galibur Rahman @
IDLC Securities
24 June 2020

Bangladesh Bank (BB), the central bank, has decreased the cash reserve ratio (CRR) by 200bps for the offshore banking operation (OBO) of scheduled banks. Now, the biweekly CRR is set at 2% from an earlier level of 4% and daily CRR is 1.5% from the previous 3.5% of the average total demand and time liabilities (ATDTL) for OBO. This new guideline will be effective from 1 July 2020. This 1.5% reduction will free up approximately BDT4.0bn.

Besides, banks now can mobilise a maximum of 30% of their regulatory capital from their domestic operations to offshore banking operations. Previously, the limit was 20%. Please note that OBUs can also accept foreign currency deposits from enterprises operating in Export Processing Zone (EPZ), Economic Zone (EZ), and High-tech parks, natural and juristic persons (legal entity) not residents in Bangladesh.

BB has also reduced the CRR requirement by 100bps to 1.5% for NBFIs. However, the total SLR requirement (including CRR) is still at 5%. Hence, the SLR requirement increased to 3.5% from earlier 2.5%. The total released amount due to this lower CRR will be approximately BDT3.5bn. Theoretically, there shouldn’t be any improvement in market liquidity but most of NBFIs already have more than regulatory required (SLR) investment in treasury bonds. Thus, NBFIs will have the option to use this free fund in lending activities as well.

There were few other circulars from BB in recent times which are discussed below.

Relaxed repatriation of income or sales proceeds from sales of non-listed shares relaxed

Bangladesh Bank has simplified and relaxed some regulations regarding the repatriation of the sales proceeds of non-resident equity investment in non-listed companies (both public and private). These relaxations will make the repatriation process faster for non-resident foreign investors.

From now on, for sales proceeds of such investment, Authorized Dealers (ADs) have the following options:

  • No need for any prior approval or valuation report from independent valuers for repatriation up to BDT 10mn. Earlier the limit was BDT 1mn.

  • No restriction on repatriation of any amount if fair value is based on net asset value (NAV). However, it has to be ensured that NAV has no revalued assets, intangible assets, expenses/losses shown as an asset.

  • No restriction in remitting more than BDT10mn to BDT100mn worth of foreign currency (if fair value is based on asset value, market value or discounted cash flow basis as prescribed by BB) and submit post-facto reports within 30 days.

This relaxed classification policy is to help the business recover from the current ongoing pandemic. However, it might create liquidity pressure in the banking sector going forward.

Interest rebate for good borrowers withdrawn  

Since 9% interest cap has been implemented in April 2020, the regulator has withdrawn the monetary incentive of interest rebate for good borrowers. However, they will receive the rebate (at least 10%) for the period from October 2018 to September 2019 (12-month period). A good borrower selection period has also been changed to December of each year from September previously. 

'Good borrowers' were previously eligible for at least a 10% rebate on the last 12 months’ paid interest. Those who have unclassified status for the last four quarters for all loans ie satisfactory payment history in the last 12 months are selected as good borrowers.

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Flash Report - Equity / Kenya

Safaricom, KCB & Co-op Bank lose out as Kenya extends its Covid policy measures

  • CBK has extended its Covid mitigation measures on e-transactions to December 2020, from 30 June previously
  • No restriction on the number of zero-rated transfers a user can make each day
  • We believe the extension of the fee waivers will increase the incidence of bank to e-wallet transactions
Tracy Kivunyu @
Tellimer Research
25 June 2020

The Central Bank of Kenya (CBK) has extended its Covid mitigation measures for e-payments by six months to December 2020. CBK had waived transaction fees on all person-to-person (P2P) transfers below KES1,000 and doubled the daily transaction limit to KES300,000, as part of the government’s Covid-19 policy response. The regulator had also waived transfer fees between mobile money wallets (e-wallets) and banks. These measures were initially enforceable from 16 March to 30 June.

Impact on Safaricom and banks

The extended measures include no restriction on the number of zero-rated transfers a user can make each day (before 16 March, transfers up to KES100 were zero-rated, restricted to a maximum of three transactions per day). We therefore expect a sustained negative impact from arbitrage (customers making multiple KES1,000 transactions to avoid costs incurred in the KES1,001-10,000 transaction band).

From our analysis of CBK data on mobile money transactions, as at 10 May, the proportion of revenue-generating transactions for P2P transfers had reduced to 74%, from 98% pre-Covid. Transaction value also dropped 5% during the same period, exacerbating the impact on revenue.

In our analysis of CBK data on bank and e-wallet transactions up to 10 May 2020, we noted that bank transactions tended to increase in the larger transaction bands, which mainly are business to business (B2B) and business to customer (B2C) transactions. We believe the extension of the fee waivers will increase the incidence of bank to e-wallet transactions. In our view, we expect this to be the last extension of the fee waiver but expect the higher transaction limits to be maintained.

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Equity Analysis / Global

Emerging Market banks: Assessing dividend vulnerabilities

  • Central banks in Vietnam, Bangladesh, Pakistan, Morocco and Ghana have restricted the dividend payouts of their banks
  • We think banks in Sri Lanka, Russia and the GCC could also prove vulnerable to dividend cuts
  • Place to hide? We highlight ten high-yielding banks in our coverage with more defendable dividends
Rahul Shah @
Tellimer Research
12 May 2020

Bangladesh Bank, the country’s central bank, announced some restrictions today on dividends that can be paid by the country’s commercial banks. This follows an edict by Morocco’s Bank al-Maghrib yesterday, with the regulator asking commercial banks to halt dividend payments. We note that similar announcements were made by the State Bank of Vietnam and State Bank of Pakistan previously.

Table 1: New central bank-imposed dividend restrictions in selected EM, FM 



CAR-based dividend restrictions (capped at BDT1.5/share)


Banks mandated not to pay dividends for 2019 and 2020


Banks urged to withhold dividends for 2020


Dividends temporarily suspended for Q1 and Q2


Central bank encourages banks not to pay 2019 dividends


Dividends payments deferred for 90 days (from Mar 2020)


Cash dividend payments suspended

Source: Central banks, IMF, Tellimer Research

Why dividends are under threat

The main rationale for all these regulatory announcements is the likelihood of higher provisioning needs as the global recession drives an increase in borrower defaults. In addition, many banks in the aforementioned markets are typically thinly capitalised. In Figure 1 below (taken from our report: The EM and FM banks best able to cope with weaker loan quality), we highlight the capacity of banks to absorb higher provisions before breaching a 12% tier 1 capital ratio threshold. Banks in Vietnam and Bangladesh fare most poorly.

Figure 1: Percentage point increase in NPLs ratio to cut tier 1 ratio to 12%

Source: Bloomberg, Tellimer Research. Note: Assumes 100% provisioning of existing and new NPLs. Calculations based on 2019 data

Where are dividends most vulnerable?

As Figure 1 highlights, in addition to banks in Vietnam, Bangladesh and Pakistan, where dividend restrictions have already been introduced, those in Sri Lanka also seem to have limited capacity to absorb higher loan defaults and could suspend quarterly dividends even if this is not a regulatory requirement.

Other at-risk sectors include Russia (the central bank has already advised banks not to pay dividends) and the GCC banks, not least given the collapse in oil prices, which poses an additional threat to loan quality in these markets (such as forcing Saudi Arabia to introduce austerity measures and hike VAT). However, ownership considerations may also play a role; for example, Bank Muscat recently paid a healthy dividend for FY 19; its core shareholder is the Royal Diwan, for whom this income is likely welcome during these tough times.

Are there any places to hide?

The charts above highlight that banks in certain SSA markets, notably Uganda, Ghana, Nigeria, Rwanda, have significant capacity to absorb new NPL formation. It is of course possible that they will experience higher new NPL formation than other markets (such as Vietnam, which has so far had a relatively mild coronavirus experience) due to, for example, a less disciplined approach to tackling the Covid-19 threat. But overall, we would argue that the risk of dividend restrictions is more remote in these markets.

A key exception is Ghana, (which incidentally has already relaxed lockdown rules, even as the Covid-19 infection rate accelerates). Here, the central bank has decreed that no dividends should be paid from FY 19 and FY20 earnings – while the names in our coverage are well-capitalised, this is not a universal trait – the regulator may prefer to keep this excess capital in the sector (eg to help rescue weaker names) than see it exit as dividends.

High yielding banks with more defendable dividends

We highlight ten names in our coverage which have high dividend yields, manageable payout ratios and strong capital ratios, drawing on work in our report FM and EM banks: Opportunities in adversity. As such, they may be of interest to yield-seeking investors, particularly those looking to reduce the volatility of their portfolios. Sign up today to access the full report. 


We thank the following for their assistance with this report:

Nkemdilim Nwadialor (Tellimer), Faith Mwangi (Tellimer), Kavinda Perera (Asia Securities), Dalia Bona (Pharos Holding), Evgeniy Kipnis (Alfa)

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