IMF calls for urgent re form of banking sector

Staff Correspondent: The International Monetary Fund (IMF) has recommended strengthening the regulatory framework in the financial sector and accelerating reforms to ensure good governance. At the same time, transparency should be increased in the preparation of credit reports of the country’s financial sector in line with international best practices. In this case some other steps have to be taken along with the various steps taken by the central bank.
The value of the rupee against the dollar is considered by the organization to be overvalued or overvalued. For this reason, it has recommended to increase the price of the dollar to adjust the value of the money to the market. Meanwhile, to reduce corruption, the organization has recommended to take inventory of the assets of government officials every year. Also asked to update the list of assets given by them every year. The organization thinks that it will reduce the tendency of corruption at the level of government officials to some extent.
These recommendations have been made in the IMF report published last Monday night. This report shows the overall picture of the economy of Bangladesh. It is said that several conditions of the financial sector have to be implemented by December. Apart from this, short and long-term reform programs should be completed quickly. The IMF considers the central bank’s reformist steps on the dollar and interest rates to be a bold move despite the economic downturn.
According to the report, the control structure in the financial sector needs to be strengthened. At the same time, good governance should be ensured in all sectors. For this reason, the ongoing reform program should be carried forward quickly. Financial sector credit reports should be prepared in accordance with international standards. In this, the definition of defaulted loans should be international. Reforms should also be brought in the credit reports that banks prepare. The supervision system of the central bank should also be modernized. In this regard, the IMF has emphasized on the introduction of risk-based supervision system in banks.
In this context, a source of the central bank said that the central bank is already doing the risk-based activities that the IMF has suggested. Risk based monitoring system is in place. Now it has been further modernized.
According to sources, currently the definition of defaulted loans is not of international standard. Here is the definition with many concessions. That is why even if a loan is eligible for default according to international standards, it defaults in Bangladesh after at least 3 to 6 months. Besides, there are considerable gaps in the reports that are made after disbursement of loans. There is no way to know from the report whether the loan is in good condition or going into default.
According to the report, the rupee is still overvalued against the dollar. That is, its price is not determined based on market demand and supply. For this reason, they recommended further appreciation of the dollar and devaluation of the rupee. For this purpose, the price of dollar should be based on the market by coordinating with the fundamental elements of the market. Action should be taken in this regard by December.
According to central bank sources, they are working to make the price of the dollar fully market-based. As part of this, the crawling peg (allowing the dollar to fluctuate within a certain range) was introduced. Only when the banks get used to this method, the central bank will go towards the market-based exchange rate.
Various steps have been taken to improve the governance structure, transparency and financial soundness of the domestic banking system. Under this, a roadmap for reducing defaulted loans has been announced. By 2026, a target has been set to bring down non-performing loans of public sector banks to 10 percent and non-performing loans of private commercial banks to below 5 percent. Apart from this, the Bank has issued regulations for appointment of MD, Director and Independent Director. Through this, the Government of Bangladesh recognizes the need to restructure the banking system.
Inflationary pressures have intensified since the start of 2022 due to high and volatile food prices, rising fuel and fertilizer prices and devaluation of the taka, the report said. Inflation has been above 9 percent since March 2023. Inflation has caused great stress on the economy. IMF loans are helping Bangladesh move forward against these pressures. The IMF will also recommend assistance to other development partners in light of the reforms underway in Bangladesh under the IMF’s lending program.