5:16 pm - Monday May 24, 6117

Inter-bank Transaction Matrix to oversee liquidity management

Bangladesh Bank will introduce a monitoring tool named Inter-bank Transaction Matrix from January 2014 to supervise liquidity management of banks and non-bank financial institutions.

To this end, the BB issued a circular to managing directors and chief executive officers of all scheduled banks and NBFIs saying that the central bank would give early warning signals to the crises institutions about their liquidity crisis by using the new tool.

bbThe BB circular said, ‘Interconnectedness among the banks and other depository institutions sometimes causes risks for themselves.’

Moreover, if the problem is systemic, then such risks will not remain confined within a specific institution rather it will cause risks to other interconnected financial institutions, it said, reports the New Age.

With an aim to prepare the banks and the NBFIs for withstanding financial crisis and make them aware of potential threats, endogenous or exogenous, the BB is going to introduce the tool.

‘This matrix would help BB find such institutions and give early warning signals for safeguarding financial institutions as well as the system from liquidity stresses in financial institutions and inter-bank market’, the BB circular said.

The BB has prepared a data template and a user manual to collect liquidity-related data from the banks and the NBFIs.

As part of the move, the BB has made a decision that all scheduled banks and NBFIs will start monthly reporting henceforth as per the user manual and specified data template, contained in a compact disk within six working days after the end of each month, the central bank circular said.

Initially banks and NBFIs will submit appropriately filled in separate data template for July-December period of 2013 within January 28, 2014.

Banks and NBFIs have to collect the CD from the Financial Stability Department of the BB within January 2, 2014.

The banks and the NBFIs usually make transaction among themselves through inter-bank REPO and call money market, a BB official told New Age on Wednesday.

Besides, the NBFIs receive term and current loans from the scheduled banks after which they disburse it to their clients as credit, he said.

A bank will plunge in a crisis if its client NBFI falls in difficulties, he said.

‘The BB will give early warning signal to the bank concerned about its client NBFI, if it falls in a crisis. As a result, the bank will be able to take preparation about its upcoming crisis’, he said.