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Jumps in funding costs amid liquidity stress will strain profitability

A spike in imports, declines in remittance inflows and high inflation have drained liquidity out of the Bangladeshi banking system. To plug liquidity shortfalls, banks can borrow from the interbank market or use the central bank's repurchase agreement (repo) facility. However, the costs of such funding have increased materially, which will pressure the profitability of banks. Islamic banks are more vulnerable to tightened liquidity conditions because they have smaller liquidity buffers and weaker profitability.

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