Bangladeshi Commercial Banks Favour Safe Short-Term Investments

Bangladesh’s leading commercial banks are increasingly directing their surplus funds towards the low-yield Standing Deposit Facility (SDF), despite the interbank lending market offering comparatively higher returns. Economic analysts attribute this trend to a decline in demand for short-term treasury bills and a cautious stance by banks regarding long-term, higher-risk investments.

Market observers note that banks are now utilising alternative channels to meet short-term funding requirements. These include foreign currency sales and domestic liquidity management instruments, reducing reliance on interbank loans. Simultaneously, the traditional appeal of short-term government securities has weakened as their yields gradually decline.

Caution in long-term investments is also a significant factor. From February 2026, the participation in treasury bill and bond auctions under the Primary Dealer (PD) framework will be restricted to designated PD banks. Consequently, many large commercial banks are prioritising the safer SDF over long-term government instruments.

On 15 July 2025, Bangladesh Bank reduced the SDF interest rate by 50 basis points to 8.0%, aiming to stimulate activity in the call money market. Nonetheless, with industrial and business loan demand remaining subdued, banks continue to view SDF as a secure and convenient investment.

According to Bangladesh Bank data, monthly SDF deposits by major banks have fluctuated significantly, as illustrated below:

A senior central bank official, speaking anonymously, noted that the call money market’s short-term loan demand has fallen, causing the weighted average interest rate (WAIR) to drop from above 10% to 9.77%. He added that Bangladesh Bank’s interventions in foreign exchange buying and selling have helped ease liquidity pressures.

While the SDF has historically been dominated by foreign banks, some state-owned banks have recently joined. For instance, Standard Chartered Bank deposits roughly 10 billion BDT daily into the SDF due to limitations on call market counterparties.

A senior banking executive observed that previously, banks invested heavily in high-yield government securities and were active in call money trading. With falling interest rates reducing the benefits of short-term instruments, banks are now focusing on safe, short-term investments. Analysts predict that with the PD regulations coming into force, this cautious investment approach is likely to strengthen further.