Monday, May 06, 2024
The International Monetary Fund (IMF) delegation has welcomed the Bangladesh Bank initiative to merge banks, but voiced criticism over the stagnant recovery process of defaulted loans as per agency conditions.
In terms of mergers, international standards should be maintained and caution should be taken to ensure that there is no instability in the banking sector after completing such a process.
Separate meetings with the IMF delegation took place at the Finance Ministry on Thursday. These issues were discussed in the meetings.
Sheikh Mohammad Salim Ullah, secretary of the Financial Institutions Division, led the Bangladesh delegation in the meeting. The other meeting was led by Additional Secretary of Finance Division Shirajun Noor Chowdhury.
Chris Papageorgiou, chief of the Development Macroeconomics Division in the Research Department led the IMF delegation.
Sources present at the meeting told The Business Post that the government could not boost recovery of defaulted loans, but the delegation welcomed Bangladesh for the merger of banks. One of the conditions of the IMF's $4.7 billion loan was to reduce such debt.
The organisation has asked to bring down non-performing loans of the banking sector to 10 per cent by 2024.
Among those, there was a condition to bring such loans to 10 per cent in state-owned banks and below 5 per cent in private banks. The delegation of this international organisation expressed its disappointment as the government is yet to show much success in this regard.
Insiders added that the IMF condition necessitates formulation of new laws, and amendments of existing ones. Among those, the government passed the Bank Companies (Amendment) Act, the Financial Companies Act, and the Offshore Banking Act.
However, the Foreign Exchange and Investment Act and other laws, including the Bankruptcy Act, have not yet been reformed. The IMF has urged to reform such laws, meeting sources said.
As part of the IMF conditions, the Bangladesh Bank had previously withdrawn the interest cap and replaced it with the Six Months Moving Average Rate of Treasury Bill (SMART) System. It was implemented from July last year.
However the IMF recommended that the interest rate should be market based.
As per the condition, the Bangladesh Bank now releases the forex reserve position as per the IMF method of BPM-6. But the global financial sector leader recommended a market-based exchange rate, which the central bank had previously disagreed with.
In another meeting, the IMF delegation expressed their views on the social safety net, saying that there are leakages in the cash benefits. These leakages should stop as soon as possible.
In this regard, the Bangladeshi officials replied that the government has taken all kinds of initiatives to stop these leakages, and the national identity card of every beneficiary has been made mandatory to avail social safety services.
In January 2023, the IMF approved $4.7 billion for a period of three and a half years.
Bangladesh received the money in two installments by fulfilling almost all the conditions, except the forex reserves. The third installment is supposed to arrive after next June.
