Commercial banks’ holdings in government securities (G-sec) continue ballooning for plum bets put on treasuries to meet budget shortfalls after a freeze on printing money as an inflation-control measure.
Such diversion of funds into G-sec is creating a crowding-out effect in credit supply to private sector, business chambers say, but bankers say they are investing in high-end treasuries amid a bit dampening credit demand from businesses in a prolonged business sluggishness.
The central bank ceased ‘devolvement’ mechanism of printed money supply to the exchequer as an option for taming inflation-fuelled price rises that hit the down-and-outs hard, but this belt-tightening basically intensifies liquidity stress in the country’s banking industry, officials and bankers have said.
As the government stopped taking supplying high-powered money to hold treasury bills and bonds, the banks’ share in the market of government securities increased to 68 per cent in the financial year (FY) 2023-24 from 61 per cent recorded in the previous fiscal (FY’23), sources at the Bangladesh Bank (BB) said.
With rising participation of banks the market size of government securities expanded by over Tk 598 billion to Tk 5.50 trillion in the just- past fiscal (FY’24) from Tk 4.89 trillion in FY’23.
Of the total G-sec amount in the last fiscal, treasury bonds hold Tk 4.08 trillion while participants bought treasury bills amounting to Tk 1.42 trillion, according to the BB statistics.
Banks altogether invested Tk 3.72 trillion (Tk 2.51 trillion in T-bonds and Tk 1.21 trillion in T-bills) in FY’24 which was 68 per cent of the entire G-sec market.
In the previous fiscal, banks invested Tk 3.05 trillion—Tk 2.30 trillion in T-bonds and Tk 1.31 trillion in T-bills-accounting for 61 per cent of that fiscal’s G-sec market.
Officials and money-market analysts say the government borrowing from the financial sector through issuing securities keeps rising because of growing budget-financing shortfalls due to less-than-expected level of revenue incomes.
Seeking anonymity, a BB official says domestic government borrowing is on the upturn significantly because of widening budget deficit for not receiving expected revenues.
On the other hand, the central banker says, the BB stopped holding securities through supplying high-powered money in a bid to contain inflation since July 2023 and this stance also significantly contributes to the rise in government securities in banks’ holdings.
“I think it (the volume of government securities) will continue growing unless the revenue-mobilisation target is reached,” the official adds.
