The Bangladesh Bank yesterday asked four state-owned commercial banks to improve their financial health by containing defaulted loans and broadening capital base after the International Monetary Fund (IMF) expressed concerns about their weak conditions.
It came at a meeting between the managing directors of the four banks – Sonali, Janata, Agrani and Rupali – and central bank officials at the BB headquarters in Dhaka in presence of Governor Abdur Rouf Talukder.
The financial health of the banks has worsened to a large extent owing to a wide range of loan scams, irregularities and lack of governance over the years.
A managing director of a state-run bank, on the condition of anonymity, says that the central bank has instructed the four banks to bring down defaulted loans by 2022.
“The meeting was quite an informal one. The central bank usually gives such instruction in almost all meetings. It might have repeated the instruction due to the IMF’s pressure,” he said.
Contacted, GM Abul Kalam Azad, the spokesperson of the BB, said that the central bank arranged the meeting with the banks to discuss on how to improve their financial health.
An IMF team is now visiting Bangladesh to scrutinise the strength of the country’s financial sector before sanctioning credit support to the tune of $4.5 billion.
It held meetings with the officials of the finance ministry and the central bank on Sunday where it expressed concerns about the weak financial conditions of the state lenders.
The Washington-based multilateral lender asked about the measures both the government and the BB have so far taken to realise default loans from delinquent borrowers.
The IMF urged the authorities to take adequate measures to reduce classified loans as the concentration of a huge amount of defaulted loans in the banks has already created risks for the entire banking sector.
The central bank has recently sent a report on the financial condition of six state-run commercial banks to the finance ministry to place it to the IMF.
Defaulted loans in four state-run banks totalled Tk 44,412 crore in June, accounting for 35 per cent of the outstanding non-performing loans in the banking sector.
The banks have also been asked to gear up the default loan recovery process after they showed a lacklustre performance between January and June.
They collectively recouped defaulted loans amounting to Tk 613 crore in the first half of 2022, far below from Tk 3,910 crore target set by the BB for them for this year.
The central bank also asked the banks to strengthen their provision base as a majority of them are now in the red, the managing director said.
With an exception of Sonali Bank, Janata, Agrani and Rupali faced a large provision shortfall in June.
For instance, Agrani and Rupali witnessed a provision shortfall of around Tk 3,000 crore each when Janata’s deficit stood at Tk 640 crore.
Banks in Bangladesh have to keep provisioning ranging from 1 per cent to 5 per cent for unclassified loans while the ratio is between 20 per cent and 100 per cent for three categories of defaulted loans.
The central bank also instructed the banks to fortify their capital base as they have been unable to maintain it in line with Basel-III guidelines.
