Due to the lack of forex currency in the market, people, especially travelers, are opting for forex payments through cards for convenience. As a result, banks are facing a liquidity crisis, the liquidity rates went from 175,000 crore to Tk 164,000 crore in a month.
In September, foreign currency transactions through cards in Bangladesh surged to Tk 689 crore, up from Tk 658 crore the previous month, according to data from the Bangladesh Bank. This increase is attributed to the ongoing devaluation of the local currency. Despite an overall decline of 2.62 percent in card transactions to Tk 39,943 crore in September, foreign currency transactions witnessed a slight uptick.
Md Abu Bokar Siddique, Head of Card at Mutual Trust Bank, noted that while overall card transactions decreased in September, foreign currency transactions rose, reaching Tk 219 crore in January 2022.
Ahsan Ullah Chowdhury, Head of Digital Financial Services at Eastern Bank, cited several factors contributing to the rise in foreign currency transactions through cards. These factors include varying foreign currency rates between card and cash transactions, the suspension of opening student files by most banks, and the preference of travelers to conduct transactions through cards due to the scarcity of foreign currency in the market.
Travelers increasingly use cards for various expenses such as airfare, travel costs, hotel bookings, and shopping. The scarcity of US dollars and other foreign currencies in cash form further drives the preference for card transactions.
The surge in interest rates on overnight borrowing and lending in the inter-bank call money market, reaching 8.07 percent by the end of the previous week, indicates a liquidity crunch in the banking sector. Increased government borrowing through treasury bills and bonds, coupled with banks purchasing dollars from the Bangladesh Bank, has led to an overall spike in interest rates.
Emranul Huq, Managing Director and CEO of Dhaka Bank, highlighted a liquidity crisis in Shariah-based banks, contributing to the upward trend in interest rates. Despite some banks maintaining good liquidity, the overall liquidity situation in the banking sector has decreased from Tk 175,000 crore in August to Tk 164,000 crore in September.
The lifting of the 9 percent cap on lending rates by the central bank has led to an increase in deposit and lending rates at banks, impacting the cost of funds and prompting higher lending rates by banks. The upward trend in interest rates is expected to continue, driven by the government’s reliance on the banking sector for financing expenses.