Staff Correspondent:

Commercial banks make a beeline for borrowing heavily from the central bank’s short-term 14-day repo after the pullback of its 28-day liquidity instrument, sources say, largely to invest in sovereign securities.

The commercial lenders needing short-term liquidity are largely bent on 14-day-tenure repurchase instrument of the Bangladesh Bank (BB) and keep banking on it as much as possible. As a matter of fact, the volume of credits handed out through the liquidity-availing window continues surging.

The switch in the commercial banks’ borrowing from the secure liquidity facility has been observed since April 09, 2025 when the banking regulator discarded the 28-day liquidity instrument following advice of the International Monetary Fund (IMF) as part of its $4.70- billion lending package for stabilising the country’s macroeconomic situation.

But there are allegations by a number of bankers and BB officials that some of the commercial lenders frequently use such instruments to avail short-term funds but invest those in long-term government securities to gain more under the persisting economic sluggishness, which plays a significant role in the squeezing of yields on treasury bonds.

According to money-market dynamics released by the BB, commercial banks altogether borrowed Tk 838 billion by using central bank repo facility (overnight, 7-day, 14-day and 28-day tenures) against the maturity of Tk 812 billion in March last. Of the amount, around 72 per cent (Tk 607 billion) was 28 days’ maturity while Tk 24.08 billion, Tk 102 billion and Tk 104 billion come from overnight, 7-day and 14-day facilities respectively.

In the following month of April, the commercial lenders borrowed around Tk 940 billion under the central bank repo facility. Of the amount, the 14-day payouts account for around 59 per cent or Tk 554 billion flowed by 28-day (Tk 230 billion), 7-day (Tk 148 billion) and overnight (Tk 6.60 billion), according to the data.

BB executive director (grade-1) Dr Md Ezazul Islam, also editor of the money-market dynamics, said the banks borrowed around Tk 940 billion under the repo facility in April. At the same time, the lenders repaid Tk 1.06 trillion on maturity.

“So, the central bank’s net fund injection is minus. It means the BB injected Tk 126 billion lesser in the month and this is a result of the phasing out of 28-day repo window,” he said, adding that getting funds from the BB will be further squeezed from the coming month when the regulator will phase out the 14-day repo, too.

Seeking anonymity, the treasury head of a private commercial bank said there are banks which use such short borrowing instrument from the BB and keep investing in long-term treasury bonds bypassing the regulator, which is against the asset-liability management (ALM) guidelines of BASEL-3.

“Banks cannot invest in long-term bonds using short-term funds. This is alarming. That’s why the US-based Silicon Valley Bank collapsed,” the treasury official alerts.

Because of the short-term fund use in treasury bonds, the senior banker says, the yield on treasury bills starts dropping.

On condition of anonymity, another BB official says there is an opportunity of using repo funds in government securities for banks under existing system.

“That’s why the regulator discarded 28-day repo facility and will do the same in case of 14-day in June. From July next, there will be no such space of it,” the central banker adds.