Commercial banks have planned to implement the proposed Dhaka inter-bank offered rate (DIBOR) by the year-end to discipline lending and borrowing of funds among them.
The move will help banks control the unusual nature of inter-bank call money rates and know the banks' overall liquidity position, treasurers in different banks said.
Currently, banks have no mechanism to quote rates for inter-bank lending and borrowing, which ultimately forces a bank to borrow at higher rates than that of even the corporate lending.
“We like to implement DIBOR by the year-end. Bangladesh Bank also wants DIBOR to be implemented,” said Syed Abu Naser Bukhtear Ahmed, chairman of Bangladesh Foreign Exchange Dealers Association, the initiator of the move.
The forex trade body has recently formed a technical committee to prepare a report on DIBOR, which will probably be submitted by the month-end.
DIBOR, if implemented, will be the barometer for interest rates that the banks in the country charge each other for term loans ranging from twenty-four hours to five years, according to technical committee members.
This inter-bank market provides a means for financial institutions with excess capital to earn higher rates of return by its lending liquid assets to those in need of funds.
The forex trade body chief, Syed Abu Naser Bukhtear Ahmed, also the chief executive officer of state-owned Agrani Bank Limited, said: “The technical committee is supposed to submit the report this month for a discussion on October 26.”
The meeting will also discuss how DIBOR-based lending and the limit of lending volume would work.
DIBOR is also important because it will be used as the base for variable rates for government and corporate loans and derivative-based products such as credit swaps, according to bank treasurers.
An increase or decrease in DIBOR will result in a corresponding rise or fall in a bank's cost of borrowing.
A treasury official of a private commercial bank who strongly supports DIBOR said the treasury bill rates are no longer reflective of the market-based interest rates.
Source: The Daily Star, October 17, 2008
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