DMD Circular No. 06: Balancing Investment of Scheduled Banks in Government Securities

Bangladesh Bank Circular No.: DMD.Circular.No.06

Chief Executive Officer P.O. Box No. 325 Dhaka.

Department of Data Management DMD Circular No. 06 Date: -----------------------

To, The Chief Executive Officers All Scheduled Banks operating in Bangladesh

Dear Sir,

Regarding the balancing of investments of Scheduled Banks in Government Securities.

Attention is drawn to the above-mentioned subject.

Scheduled Banks operating in Bangladesh hold Treasury Bills and Bonds for the purpose of preserving liquid assets under Section 33 of the Companies (Banking) Act, 1991 (amended up to 2003). The held Treasury Bills and Bonds also serve as liquidity coverage (Liquidity Coverage Ratio). Currently, the overall holding of Treasury Bills and Bonds in the banking sector is not evenly distributed. To make this distribution reasonable, it has been decided that henceforth, 60% of the announced amount (Total Amount) of Treasury Bills/Bonds to be issued according to the auction calendar will be distributed among Primary Dealer banks, and the remaining 40% will be distributed among the 25 Scheduled Banks listed in Annexure-B. In this regard, it is mentioned that other banks, apart from Primary Dealer banks, will not be considered as Primary Dealers even if they hold Treasury Bills/Bonds in this manner. However, for the purpose of liquidity management, Non-PD banks will also be provided with liquidity facilities (Liquidity Facility) from Bangladesh Bank in accordance with the instructions contained in DMD 01/2012 letter dated 22/02/2012 of this department. The new auction method and the distribution of Treasury Bills/Bonds among banks are included in Annexure-C.

These instructions are issued under the powers conferred by Section 45 of the Companies (Banking) Act, 1991.

The above instructions will come into effect from August 1, 2012.

Please acknowledge receipt.

Yours faithfully,

Enclosure: As per instructions

(Bishnu Pad Sah) General Manager Phone: 9530131

24 Shrawan, 1419 Bangabda. 24 July, 2012 CE.

Annexure -C Auction and Distribution Method of Treasury Bills/Bonds. The auction and distribution of Treasury Bills/Bonds will be conducted in the following manner:

(a) 60% of the announced amount (Total Amount) of Treasury Bills and Bonds to be issued according to the auction calendar will be distributed among Primary Dealer banks (12), and the remaining 40% will be distributed among other 25 banks (Annexure-B).

(b) For Primary Dealer banks, 30% of the allocated amount (30% of Total Amount) will be issued through auction. The other half (30% of Total Amount) will be distributed equally among all PDs. In this auction, the monthly average ratio of Primary Dealers will be determined based on the Total Receivables and Term Liabilities (Total Receivables and Term Liabilities) of PD and Non-PD banks, which are the highest received for the purpose of calculating LCR/LCR. The Total Receivables and Term Liabilities mentioned above will be converted to 100% of the Total Proportional Liabilities of Primary Dealer banks, and the monthly average ratio of PDs will be determined based on the share ratio of their respective ratios. Non-PD banks/financial institutions can also participate in the auction conducted for PDs. The portion of Treasury Bills and Bonds determined as the floor price in the aforementioned auction will be used as the floor price for the equal distribution of the remaining amount (30% of Total Amount) of Treasury Bills/Bonds among PDs. For example, if the Total Amount is 100 Crore Taka, 60 Crore Taka will be allocated for PDs. Of this 60 Crore Taka, 50% i.e., 30 Crore Taka of Treasury Bills/Bonds will be issued through open auction, where the monthly average ratio of PDs will be determined based on Total Receivables and Term Liabilities. The other 50% i.e., 30 Crore Taka will be distributed equally among PDs. In this case, the portion of Treasury Bills/Bonds determined as the floor price in the auction will be considered.

(c) No auction will be held for the distribution of Treasury Bills/Bonds (40% of Total Amount) among Non-PDs, i.e., no bid will be required in this case. The ratio for the 25 Non-PD banks mentioned in clause (b) above will be calculated according to the method mentioned in clause (b). Considering the portion of Treasury Bills/Bonds determined as the floor price in the auction mentioned in clause (b) above as the floor price, the aforementioned Total Amount (40%) will be distributed among Non-PD banks according to their respective ratios.

(d) If a Non-PD bank participates in the auction mentioned in clause (b) for PD banks and receives Treasury Bills/Bonds, the amount of securities ('c' clause mentioned) taken by the concerned Non-PD bank will not decrease.

(e) The rate of the monthly average ratio of Primary Dealers determined based on the Total Receivables and Term Liabilities (Total Receivables and Term Liabilities) and the rate of mandatory security acceptance by Non-Primary Dealers will be informed in due course in the last week of the month preceding the auction.

Annexure -B List of Non-Primary Dealer Banks.

Sr. No. Name of Non-Primary Dealer Bank

1. Rupali Bank Ltd.
2. Bank Asia Ltd.
3. Bangladesh Commerce Bank Ltd.
4. Barak Bank Ltd.
5. Dhaka Bank Ltd.
6. Dutch-Bangla Bank Ltd.
7. Eastern Bank Ltd.
8. IFIC Bank Ltd.
9. One Bank Ltd.
10. Premier Bank Ltd.
11. Pubali Bank Ltd.
12. Standard Bank Ltd.
13. The City Bank Ltd.
14. The Trust Bank Ltd.
15. United Commercial Bank Ltd.
16. Bank Alfalah
17. City Bank N.A.
18. Commercial Bank of Ceylon Ltd.
19. Habib Bank
20. HSBC
21. National Bank of Pakistan
22. State Bank of India
23. Standard Chartered
24. UBL Bank
25. Basic Bank Ltd.