The central bank has extended a total of Tk 22,000 crore in emergency funds to seven beleaguered banks including five Islamic banks to dress up their balance sheet ahead of the year's end.

On December 28, Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Global Islami Bank, Union Bank, Padma Bank and National Bank took the fund for three days at 9.7 percent interest, The Daily Star has learnt from Bangladesh Bank officials informed with the proceedings.

The funds were taken against 'demand promissory note' as the banks have no securities to offer as collateral.  

A demand promissory note is a legally binding document between a borrower and a lender. With this agreement, the borrower promises to repay the money whenever the lender demands it.

The BB accepts a demand promissory note when a bank does not have available bills and bonds to provide as collateral.

"Providing loans against demand promissory note is a normal practice," said BB spokesman Md Mezbaul Haque.

Banks can borrow from the central bank against the promissory note for 180 days at most, he added.

However, the BB officials said the extraordinary facility was extended to help the banks meet the shortfall in their mandatory cash and liquidity holdings and show a tidy balance sheet for the year

If the banks show a shortfall in their regulatory cash and liquidity holdings in their balance sheets at the year-end, the depositors' confidence in them will take a big hit, the officials said.

Padma Bank, formerly known as Farmers Bank, took the emergency loans from the central bank on Thursday to meet the shortfall in regulatory cash holdings, said its managing director Tarek Reaz Khan.

The bank has taken the fund for three days, he added.

The emergency liquidity support provided to the Shariah-based banks -- where Chattogram-based conglomerate S Alam Group holds significant stakes -- is not for meeting their current account deficits with the central bank, according to the BB officials.

The current accounts of Islami Bank, Social Islami Bank, First Security Islami Bank, Union Bank and Global Islami Bank have been in deficit for a long time, according to a BB letter sent to the lenders' managing directors on November 28.

The banks were given 20 working days to clear their deficits.

Now, only First Security Islami Bank is in the deficit and the central bank has given the bank three months to settle the negative balance, the BB officials said.

Zafar Alam, managing director of Social Islami Bank, declined to comment about the central bank's extraordinary lending support but said the bank's current account with the BB is no longer in the deficit.

The banks' boards should be reformed before giving any liquidity support, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

On December 21, BB reconstituted the board of the National Bank.

"Those banks are in need of that extraordinary liquidity support now because of the lack of accountability. If the banking regulator wants to rescue the banks, it has to protect the depositors' interests first. The Bangladesh Bank cannot give away people's money like this," said Mansur, also a former chairman of BRAC Bank.