Bangladesh Bank (BB) has decided to discontinue the assured liquidity support (ALS) facility for primary dealer (PD) banks, marking a significant regulatory shift in the financial sector.

The decision follows a prolonged period of non-devolvement in government securities (G-Sec) auctions and recommendations from the International Monetary Fund (IMF) under its $4.7 billion loan program to stabilize the country’s macroeconomic conditions.

Introduced in 2008, the ALS facility was designed to support PD banks in meeting their underwriting obligations for G-Sec auctions. PD banks are required to purchase any unsubscribed portions of government securities, and in return, BB provides liquidity support at the repo rate, currently set at 10%.

However, for the past three fiscal years, no such devolvement has occurred, leading the central bank to consider the facility redundant and potentially unfair to non-PD banks.

Officials argue that continuing ALS would distort market competition, as PD banks would enjoy advantages over non-PD banks despite the absence of devolvement obligations. The IMF had also criticized the provision, recommending its termination as part of its broader macroeconomic stabilization strategy for Bangladesh.

Bangladesh Bank Governor Dr. Ahsan H Mansur recently approved a proposal directing the relevant departments to take steps to phase out the facility, with implementation likely after the current fiscal year.

Bankers have voiced apprehensions about ALS’s withdrawal, warning that it could worsen liquidity conditions and affect banks’ ability to participate in government borrowing programs.

Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank (MTB), noted that while some banks have sufficient liquidity, others are under significant stress. He highlighted that removing ALS would tighten liquidity further and urged the regulator to hold discussions with stakeholders before implementing the decision.

A treasury head at a PD bank, speaking anonymously, suggested that if ALS is discontinued, the concept of primary dealer banks could become obsolete, as non-PD banks already participate in G-Sec bidding.