Bangladesh's commercial banks, particularly the primary dealers (PDs), face revaluation losses on government securities as the yields on the borrowing tools increased significantly.
Higher yields on government securities, particularly Bangladesh Government Treasury Bonds (BGTBs), have forced the banks to book revaluation losses on the long-term securities each week after calculation using 'marking-to-market system', according to market operators.
Marking-to-market or mark-to-market system is a process of calculation to determine the market value of an asset.
The system refers to changes in the value of futures contracts on a weekly basis. It also calls for reporting the value of assets on a market rather than a book-value basis.
The value of all government-approved securities will be calculated on the basis of one-year tenure of the held-to-maturity investment while the valuation will be calculated on a weekly basis for the held-for-trading investment.
The rising trend of the risk-free securities started in August this calendar year following the mopping up of excess liquidity by the central bank from the market, they explained.
On Tuesday, the yield on Ten-Year BTBGs increased significantly following the mopping up of excess liquidity by the central bank.
The cut-off yield, generally known as interest rate, on the BGTBs rose to 7.44 per cent on the day from 6.80 per cent earlier. It was 5.38 per cent on June 23 this calendar year.
The government borrowed Tk 11 billion instead of pre-auction target at Tk 20 billion through issuing 10-Year BGTBs to meet its budget deficit partly.
"The government borrowed less than the target for the surplus position on its account along with keeping the yield on the long-term bonds at a reasonable level," a senior BB official told the FE.
He also said the yield on 10-Year BGTBs would have reached 8.10 per cent if the government had borrowed the full amount of pre-auction target.
Like 10-Year BGTBs, the yield on 20-Year BGTBs and 15-Year BGTBs rose to 7.44 per cent and 7.19 per cent respectively on October 10, 2021 from 5.65 per cent and 6.04 per cent receptively on July 28 this calendar year.
However, the yield on Five-Year BGTBs and Two-Year BGTBs reached 5.75 per cent and 4.13 per cent respectively this month from 3.88 per cent and 2.33 per cent respectively on June 16, 2021 and August 05 this calendar year.
In October 2021, Primary Dealers Bangladesh Limited (PDBL) sent a letter to Bangladesh Bank (BB) Governor Fazle Kabir for a discussion on the latest situation on the country's securities market.
A high-level meeting is scheduled to be held today (Wednesday) at the central bank headquarters in Dhaka with Deputy Governor of BB A K M Sajedur Rahman Khan in the chair following the PDBL letter.
On the other hand, a six-member delegation, headed by the PDBL chairman Md. Ataur Rahman Prodhan, is expected to attend the meeting.
"We'll seek policy support from the central bank at the meeting to overcome the prevailing situation," a senior member of the PDBL told the FE on Tuesday.
The government had issued the BGTBs worth Tk 784.61 billion since September 01, 2020 until September 30 this calendar year, according to the PDBL member.
When contacted, a BB senior official told the FE that the central bank has already increased holding of the government securities under 'held-to-maturity (HTM)' category.
Under the existing provisions, the banks are now allowed to meet their statutory liquidity ratio (SLR) with 135 per cent of securities which are treated as HTM instead of the existing 125 per cent earlier.
Currently, four treasury bills (T-bills) are being transacted through auctions to adjust government's borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
Also, five government bonds with tenures of two, five, 10, 15 and 20 years respectively are traded on the market.
The central bank earlier had selected 21 PDs to manage the government-approved securities on the secondary market.
