State lenders urged to improve health as IMF raises concerns

Bangladesh Bank yesterday asked four state-owned commercial banks to improve their financial health by containing delinquent loans and expanding the capital base after the International Monetary Fund (IMF) raised concerns over their weak terms.

He spoke during a meeting between the chief executives of the four banks – Sonali, Janata, Agrani and Rupali – and central bank officials at the BB headquarters in Dhaka in the presence of Governor Abdur Rouf Talukder.

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The financial health of banks has deteriorated significantly due to a wide range of loan scams, irregularities and lack of governance over the years.

A chief executive of a public bank, on condition of anonymity, said the central bank had ordered the four banks to reduce delinquent loans by 2022.

“The meeting was quite informal. The central bank usually gives such instructions in almost every meeting. It could have repeated the instruction due to pressure from the IMF,” he said.

When contacted, Managing Director Abul Kalam Azad, the spokesman for the BB, said the central bank had arranged the meeting with the banks to discuss how to improve their financial health.

An IMF team is currently visiting Bangladesh to examine the soundness of the country’s financial sector before sanctioning credit support of up to $4.5 billion.

He held meetings on Sunday with finance ministry and central bank officials in which he expressed concerns about weak financial conditions for public lenders.

The Washington-based multilateral lender asked about the steps the government and the BB have taken so far to realize loan defaults from defaulting borrowers.

The IMF urged the authorities to take adequate measures to reduce classified loans because the concentration of a huge amount of defaulted loans in banks has already created risks for the entire banking sector.

The central bank recently sent a report on the financial situation of six state-owned commercial banks to the Ministry of Finance for submission to the IMF.

Delinquent loans at four public banks totaled Tka 44,412 crore in June, accounting for 35% of outstanding non-performing loans in the banking sector.

Banks have also been told to speed up the process of recovering defaulted loans after posting poor performance between January and June.

They collectively recovered defaulted loans amounting to Tk 613 crore in the first half of 2022, well below the BB’s target of Tk 3,910 crore for this year.

The central bank has also asked banks to strengthen their provision base as the majority are now in the red, the chief executive said.

With the exception of Sonali Bank, Janata, Agrani and Rupali faced a large provision shortfall in June.

For example, Agrani and Rupali witnessed a provision shortfall of about Tk 3,000 crore each while Janata’s shortfall stood at Tk 640 crore.

Banks in Bangladesh must maintain a provisioning ranging from 1% to 5% for unclassified loans, while the ratio is between 20% and 100% for three categories of delinquent loans.

The central bank has also asked banks to bolster their capital base as they have been unable to maintain it in line with Basel-III guidelines.

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