Despite printing money, Bangladesh Bank is facing tough challenges and pressure from the IMF. Bangladesh Bank’s initiatives to strengthen weak banks have faced considerable hurdles. Despite the fact that printed money and central bank guarantees have been used to provide liquidity support, these banks’ liquidity crisis has yet to be overcome. The banks are now demanding additional liquidity support.
Despite printing money:Â The additional liquidity of weak banks is running out, and they are trying to increase deposit mobilization. Furthermore, they are being held accountable to the central bank for obtaining remittances at high rates.
Meanwhile, the IMF applies pressure. They want to reduce non-performing loans (NPLs) and tighten the definition of NPLs. Under the current definition, non-performing loans have risen to 2.88 trillion Taka. The international standard definition of non-performing loans will be introduced beginning in April, presumably increasing NPLs even higher by the end of June.
Among these, banks that were robbed during the previous government are experiencing a high surge in non-performing loans as the confiscated funds are not recovered. A significant amount of these funds has been laundered abroad. As a result, these loans are labeled as non-performing after they become past due.
The central bank’s assessment shows that practically all indicators of the country’s weak banks have deteriorated. Deposits have plummeted, and liquidity has fallen much farther than previously. The banks’ liquidity has plummeted by 98% during the last three months. This predicament, according to the central bank, is the result of a lack of sound governance and bank irregularities.
According to the report, one of the primary causes of the liquidity issue affecting weak banks is internal irregularities and a lack of sound governance. As a result, ensuring sound governance in the weak banks is critical. If this is done, client confidence in banks will grow, making it easier to address the current situation.
The central bank has instructed banks to focus on building client confidence. According to the study, weak banks’ deposit balance in June was 44,031 crore Taka. By September, it had dropped to 43,667 crore Taka, a decrease of 8,042 crore Taka, or over 2%, in three months. The investment balance increased by just 0.42%. Previously, it grew faster. With the decline in investment, the deposit-to-investment ratio has plummeted to 3.67%.
In June, the excess liquidity totaled 10,390 crore Taka. By September, the figure had dropped to 161 crore Taka. Over three months, excess liquidity decreased by 10,229 crore Taka, or 98.5%.
However, export revenues, remittances, and imports have all increased. As a result, banks are doing well in international trade. Because of the dollar’s high purchasing price, the central bank is now closely monitoring them. In addition, there are a few strong banks.
Meanwhile, Shariah-based banks are losing ground to conventional banks because to financial weakness. The majority of these banks are considered weak. The central bank has granted liquidity assistance of 22,500 crore Taka in printed money to six critically weak banks. These banks are collecting deposits at high interest rates, yet they are unable to remedy the situation.
The banks are now focusing more on loan recovery. Without loan recovery, it appears that there is no other path out of the current predicament. Even with debt recovery, resolving the matter is challenging. This is because banks have been able to collect certain loans, particularly those when the funds and businesses remain in the nation. However, collecting laundered funds or loans from fleeing entrepreneurs is difficult and time-consuming.
Furthermore, modifying the law to impose strong penalties for defaulters and recovering laundered funds is a time-consuming process. Keeping weak banks viable has been a significant issue for the central bank thus far. As a result, the central bank intends to enact a new rule that will allow banks that are not operating correctly or failing to improve their indicators in accordance with the central bank’s standards to combine with other banks.
Meanwhile, there is little favorable experience with bank mergers. This is because, during the previous administration, when the merger of specific banks was announced, clients rushed to withdraw their deposits. As a result, the banks suffered even bigger losses.
Starting next year, the central bank will implement a “Promote Corrective Action Plan” for weak institutions. A policy in this regard was announced around the end of 2003. Under this approach, banks that fail to fulfill key indicator targets will face a variety of severe actions. Notable examples include the cessation of loan distribution and a reduction in deposit collection. Given these circumstances, the central bank is taking a cautious approach.
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