Banks struggling with huge pressure of cash withdrawals ahead of Eid

The demand for cash has increased in the banking sector as businesses and individuals sought to withdraw money to make payments, reports UNB.

As a result, banks are struggling to meet the huge demand for cash money every day for the last few weeks.

According to Bangladesh Bank, the demand for call money was between Tk 60 billion to Tk 80 billion on an average each day last week.

Call money is any type of short-term, interest-earning financial loan that the borrower has to pay back whenever the lender demands.

Call money allows banks to earn interest, known as the call loan rate, on their surplus funds.

According to the central bank, last Tuesday, some banks borrowed Tk 79.54 billion from other banks. The previous day, the loan amount was Tk 68.72 billion. From the beginning of April, the pressure of interbank, short-term borrowing has increased. In the first eight working days, Tk 627.19 billion was borrowed from the call money market.

Sector insiders said that every year before Eid, demand for cash increases several times. As a result, there is a cash money crisis in many banks at this time.

To deal with this situation, banks take interbank loans (call money).

This year, some banks are facing added pressure as they are already dealing with liquidity crisis. Now these banks have to pay higher interest to the call money market to deal with the shortage of cash.

Some bank officials said that many banks are suffering from a liquidity crisis due to the loss of customers’ confidence because of irregularities. Some banks are in urgent need of cash because of buying dollars.

High inflation, decreasing deposit growth and increasing credit demand are causing liquidity crunch. As a result, short-term loan demand increased in the interbank market.

Syed Mahbubur Rahman, Managing Director and Chief Executive Officer of Mutual Trust Bank, told UNB that there is pressure to withdraw cash every year before Eid. Because before Eid, the companies give salary and bonuses to their employees.

Besides, people keep cash in hand for Eid-related expenses. So, banks have a high demand for cash. Banks borrow from the call money market to meet these demands.