Strengthen banking sector through strategic liquidity support

In a commendable move to bolster stability within the financial sector, Bangladesh Bank's recent facilitation of Tk9.5 billion in liquidity support to several weaker banks marks a pivotal moment in the country's banking landscape. By employing a strategy that leverages inter-bank liquidity rather than resorting to money printing, the central bank is now focusing on immediate needs of struggling institutions while safeguarding the broader economic framework.

Facilitating this support through stronger banks-such as City Bank, Mutual Trust Bank, and Dutch-Bangla Bank-demonstrates a collaborative approach within the banking community. It acknowledges the fact that the financial system is interconnected; when one institution falters, it can jeopardize stability of others. This liquidity transfer provides a lifeline to institutions like First Security Islami Bank Limited and Social Islami Bank Limited, allowing them to stabilize operations without inflating money supply or adding to fiscal burdens.

One standout aspect of this initiative is its strategic focus on macro-economic stability. By using inter-bank liquidity support, Bangladesh Bank effectively minimizes risks of inflation-an ever-present concern in the region's economic landscape. This is crucial, especially as many economies grapple with aftershocks of global instability. Instead of creating high-powered money that could lead to further inflationary pressures, this approach ensures support is delivered sustainably and responsibly.Moreover, this initiative fosters a culture of accountability and resilience within the banking sector. By requiring stronger banks to provide liquidity to weaker counterparts, a sense of collective responsibility is established. And this encourages stronger banks to engage in prudent risk management and fosters a spirit of cooperation, which is instrumental in creating a more robust financial ecosystem.
As we observe ongoing documentation for further participation from other banks, it is encouraging to see potentials for a wider safety net being woven around the financial sector.

Our message is clear: stability of the banking system is a shared responsibility, and a proactive approach can mitigate risks before they escalate into crises.

However, while this initiative is commendable, it is vital for Bangladesh Bank and financial institutions to remain vigilant. Continuous monitoring of the banking sector is crucial, and there should be an emphasis on improving governance and risk management practices among weaker banks. This will ensure liquidity support does not become a crutch but rather a stepping stone toward long-term stability and growth.

Last but not the least, Tk9.5 billion liquidity support initiative is a thoughtful and strategic measure aimed at strengthening the banking sector without compromising macro-economic stability. It underscores the importance of collaboration within the financial ecosystem, laying groundwork for a more resilient future. As Bangladesh navigates complexities of a dynamic economic environment, initiatives like this will be instrumental in securing stability and integrity of its financial system.