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Bangladesh - Biz World - October 10, 2023

BB inspection weakness increased defaults: IMF

Farhad Chowdhury: Even after giving special facilities, defaulted loans did not decrease. On the contrary, the amount of defaulted loans, the main problem of the banking sector, has increased. It is decreasing a little in one quarter and making a record again in the next quarter. The last quarter broke all previous records of defaulted loans. The amount of defaulted loans in the country’s banking sector is now Tk 156,039 crores. Many banks are unable to maintain provisions as defaults increase. 8 commercial banks of the country have a large provision and capital deficit.
IMF blames weakness in inspection of Bangladesh Bank as reason for rising defaults. The International Monetary Fund (IMF) delegation visiting Dhaka directly indicated this.
According to the agency, banks are taking advantage of central bank inspection weaknesses to break the rules and give loans. Due to lending to special groups, a large number of them are defaulting deliberately in violation of norms. The bank is in crisis.
Despite the increase in loan defaults, Bangladesh Bank’s strong position against defaulters is not so visible. Again, the IMF has doubted the paper-based inspection. In this situation, the organization wants specific steps to reduce defaulted loans in the country’s banking system. Through which the irregularity of the loan will be visible.
The IMF delegation highlighted these issues in a meeting with Bangladesh Bank officials. Issues related to high default loans, inspection management of Bangladesh Bank and steps taken by Bangladesh Bank took place in the meeting.
Central Bank officials and IMF representatives participated in the discussion.
According to related sources, defaulted loans are increasing at an alarming rate in the country’s banking system. The IMF is concerned about this high level of non-performing loans. In response to the IMF delegation’s questions about defaults in the meeting, it was said on behalf of Bangladesh Bank, “Record defaults have been created due to intentional loan defaults.” A list of willful defaulters will be prepared to reduce loan defaults in banks. A zero-tolerance policy will be followed for willful defaulters. Bank Companies Act has been amended as part of this.
The Central Bank has also announced to bring innovations in bank inspection to reduce defaulted loans. Irregularities will be punished. The IMF delegation was also informed about the suspension of new loan approvals and ban on foreign travel for willful defaulters.
Some of the officials who participated in the meeting said on condition of anonymity that the members of the IMF delegation want to know about private sector loans, financial management of the current financial year, foreign loans, trade deficit. They expressed concern over foreign exchange reserves, bank liquidity management, bank subsidies, review of IMF’s past advice, classification of defaulted loans, updated status of non-performing loans and high inflation.
Spokesperson and Executive Director of Bangladesh Bank Majbaul Haque said on these issues that everything has been discussed with the IMF. The meeting also discussed the implementation and progress of IMF’s past advice. A detailed discussion will be held with the delegation on these issues till October 19.
Foreign exchange reserves in the country are now $26.81 billion dollars. Excluding the EDF bill, the reserve as per IMF is $21.03 billion.
The IMF proposed a total of 47 reforms related to Bangladesh’s banking, revenue and stock markets as conditions for lending. The IMF approved a $4.7 billion loan after pledging to implement the demands of the reform proposal step by step. The first installment was released last February. If everything goes well, the second installment of the loan can be disbursed in November.

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