Liquidity crisis drives five Shariah-based banks towards halt in transactions
The financial transactions of five Shariah-based banks in the country are grinding to a halt due to fund crisis. Bangladesh Bank has sent letters to these banks saying that the current account balance of these banks with Bangladesh Bank has long been in the negative. Despite repeated reminders, the banks have taken no significant steps to address the matter. Bangladesh Bank has now given these banks a 20-day deadline to adjust the negative status of the current accounts.
Bangladesh Bank has said that if this adjustment is not done within 20 days, the banks will be blocked from the clearing system. The banks who have been given these instructions are Islami Bank, Social Islami Bank, First Security Islami Bank, Global Islami Bank and Union Bank. Bangladesh Bank sent these letters on 28 November to the managing directors of these five banks.
According to the Bangladesh Bank rules, the Shariah-based banks have to keep 4 per cent of their deposits as CRR in their current accounts. Basically, in order to protect the interests of the depositors, a certain amount of the deposits are to be kept with Bangladesh Bank. None of these five banks have been able to maintain the CRR as specified
While the current account status with Bangladesh Bank has been negative, the central bank has regularly been providing these banks with loans. This provision is being made so that the clients do not fail to withdraw their deposits.
These five Islamic banks have been facing liquidity crisis for a year now. While deposits have increased in these banks, they are not keeping the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) funds deposited in the central bank. As a result, fines and interests are piling up. And many of them are not even paying the fines.
Bangladesh Bank's spokesman Mezbaul Haque was unwilling to speak directly about the matter. However, he told Prothom Alo that if the central bank has issued any letter, it will act accordingly. The banks facing liquidity crisis borrow money from Bangladesh Bank in various ways. After that if they fail to keep the cash deposited as committed, the central bank can take action. The Islamic banks have structural problems with liquidity management and so these banks were given a deadline until November.
Central bank letter
According to the rules, all banks of the country must maintain a current account with the Bangladesh Bank Motijheel office. Bangladesh Bank settles all transactions from this account. CRR funds are also kept in this account.
The Bangladesh Bank letter sent to these five banks states that various transactions, such as the cheque clearing service (BACPS), online money transfer (BEFTN), service from other banks through ATM and Internet (NPSB) and immediate money transfer (RTGS) is carried out from the current account with the Motijheel office deposit account department. It said, a review of your current account status reveals that the current account status has long been in the negative which is not in keeping with the normal banking procedures.
The letter further says, it has been advised that the current account negative status be adjusted within 20 working days from receiving this letter. If the funds are not arranged within the stipulated time, the banks will be suspended from the clearing system as per the agreement with the Bangladesh Bank payment system department to maintain adequate funds in the specified account to carry out transactions. The central bank has threatened to close down the cheque clearing, ATM and online banking services of these five banks. Till Wednesday these five banks hadn't adjusted the negative status of these accounts.
Attempts were made to speak to managing director of Islami Bank, Muhammad Monirul Maula, but he did not respond to the phone calls. However, on November he had told Prothom Alo, "We hope the crisis will be cleared within November. It will be possible to deposit the required amount in Bangladesh Bank."
Attempts were also made to contact the managing directors of the other four Islamic banks, but they did not respond either.
According to the Bangladesh Bank rules, the Shariah-based banks have to keep 4 per cent of their deposits as CRR in their current accounts. Basically, in order to protect the interests of the depositors, a certain amount of the deposits are to be kept with Bangladesh Bank. None of these five banks have been able to maintain the CRR as specified.