Staff Reporter :
Bangladesh Bank (BB) Governor Dr Ahsan H Mansur announced on Wednesday that the central bank will no longer provide liquidity assistance to troubled or weak banks by printing new money.
Instead, the central bank will support these institutions through interbank arrangements, acting as a guarantor for such transactions.
Dr. Mansur highlighted that bailing out fragile banks facing liquidity issues would require printing at least Tk200,000 crore, a move that would exacerbate inflation and further increase the US dollar rate. To avoid these negative economic impacts, the central bank is opting for a more sustainable approach.
In addition, the Bangladesh Bank will establish three taskforces aimed at tackling non-performing loans, with plans to further strengthen the regulatory and legal frameworks within the banking sector.
These decisions were made during the quarterly bankers’ meeting held at the central bank on Wednesday, chaired by Dr. Mansur.
At a press conference following the meeting, Dr. Mansur emphasised that the entire banking sector should not suffer due to the mismanagement of a few banks, underscoring the importance of targeted interventions to stabilise the financial system.
“Considering the depositors, we want to offer limited liquidity support,” he said, explaining that this support will be carefully managed to avoid exacerbating inflation.
Earlier in August 14, the Bangladesh Bank reduced the special liquidity support extended to nine lenders, including five Shariah-based banks.
The banks are National Bank, Padma Bank, ICB Islamic Bank, and six others in which the S Alam Group holds a majority stake: Islami Bank Bangladesh, First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, and Bangladesh Commerce Bank.
All nine of the banks have long been battling a liquidity crisis; as such, they have been running operations by utilising the central bank’s special liquidity support.
Dr. Mansur highlighted that a significant amount of money has been laundered through eight banks, leading to their current liquidity crisis.
While the government is concerned about protecting depositors, he pointed out that fully resolving the liquidity issues of these banks would require an infusion of around two lakh crore taka, which could drastically increase inflation.
“We aim to provide limited liquidity support through interbank channels, with Bangladesh Bank serving as the guarantor,” he said.
The governor reassured depositors, urging them not to withdraw their funds en masse and to allow time for the banks to recover.
“The entire banking sector should not be compromised due to the failures of these 7 to 8 banks,” he added.
Since taking office as governor on August 20, Dr. Mansur has met with business leaders at Bangladesh Bank’s head office in Motijheel.
He iterated his stance that weak and troubled banks would not be rescued by printing money or through sudden closures, stressing that these approaches would not provide a sustainable solution.
Briefing reporters after the meeting, the Association of Bankers, Bangladesh (ABB) Chairman and BRAC bank Managing Director Selim RF Hussain said, “The government is worried about the large volume of defaulted loans in the banking sector.
Defaulted loans have surged to an all-time high of Tk2.11 lakh crore at the end of June, as a lack of governance and various irregularities—such as concealing the true financial picture through window dressing—in the country’s banking sector during the ousted Sheikh Hasina regime have begun to surface.
According to data from the Bangladesh Bank, toxic debt in banks rose by Tk29,096 crore in the June quarter, marking an increase of around 16 percent from the default amount at the end of March.
The central bank’s latest data also showed that at the end of June this year, total disbursed loans stood at Tk 16,83,855 crore in the banking sector.
Now, NPLs increased to 12.56 percent of the total outstanding amount based on official data, which is the highest in the country’s banking sector.
“The governor told us that he will form a taskforce to tackle such loans. Regarding the non-performing loans, we think that a major change is needed in the legal framework. We need more specialised courts and judges properly trained on financial issues.” Selim informed.
“The Bangladesh Bank will establish three distinct task forces to address non-performing loan management, the strengthening project, and the legal framework.”
“The task forces will be of international standard. Experts from the World Bank and the International Monetary Fund may be included,” he further added.
Selim Hussain also informed us that the central bank will increase its policy rate to 10 percent in the next 1-2 months to tame inflation.