Conditions under which four struggling banks received liquidity assistance

Four struggling private banks that have received Tk945 crore in financial assistance as loans from stronger banks will need to comply with a set of conditions regarding the use of the funds.

As per conditions, First Security Islami Bank, Social Islami Bank, Global Islami Bank, and National Bank cannot refund deposits to any companies owned by or linked to any former or current directors of the financial institutions using the borrowed money.

The Bangladesh Bank has attached conditions for the banks weakened by loan fraud and various irregularities to extend its guarantee for securing the bailout funds.

The four banks will not be able to disburse any new loans with the borrowed funds and remain barred from paying any cash dividends during the guarantee period or until the liabilities associated with the borrowed money are cleared, according to sources at the Bangladesh Bank.

The Bangladesh Bank has provided a liquidity guarantee under special arrangements for weak banks. In the first phase, four banks received assistance at an interest rate between 12.5% and 13.5%.

According to sources, the conditions of the guarantee stipulate that no new loans or investments can be made. The credit limit for existing customers cannot be increased, and any loans previously sanctioned but not disbursed will also remain undisbursed.

Additionally, any existing interbank liabilities or placements cannot be settled through using the funds received by the banks. Furthermore, the money received under the guarantee cannot be deposited in any bank included in the guarantee scheme.

"A bank cannot acquire loans or investments from other banks, cannot use the funds to purchase dollars, and cannot increase operating expenses by more than 5% compared to the previous year," said a central bank official.

"Moreover, during the guarantee period, new deposits must cover the current account deficit, Cash Reserve Ratio (CRR), and Statutory Liquidity Ratio (SLR) liabilities of the Bangladesh Bank, as well as customer deposit liabilities."

Central bank officials noted that they have disbursed 25% of the funds allocated for weak banks to borrow against guarantees in the first phase. If these banks fail to improve their situations, no further funds will be lent, and the strategy will be revised.

Five strong banks with excess liquidity have provided these loans under the guarantee or assurance of the central bank. The banks that have extended support are City Bank, Eastern Bank, Mutual Trust Bank, Dutch-Bangla Bank and Bengal Commercial Bank. ***