IMF Raises Concerns Over Bangladesh’s Banking Sector
The International Monetary Fund (IMF) has voiced significant concerns regarding Bangladesh’s “failure to take decisive action” involving around 20 banks that are facing critical undercapitalization. It’s perplexing, really—these banks continue to pay salaries and bonuses to employees, despite dealing with substantial losses and a rise in non-performing loans (NPLs).
This issue emerged during a meeting in Dhaka yesterday, bringing together an IMF delegation and officials from Bangladesh Bank, led by Deputy Governor Zakir Hossain Chowdhury. The discussions centered on matters such as asset classification in banks, provisions, credit risk, and regulatory forbearance.
IMF representatives questioned why these struggling banks, grappling with significant non-performing loans and capital shortages, weren’t being liquidated.
A Bangladesh Bank official replied, stating that bank liquidations are quite rare in the country. Instead, efforts are being made, like merging five of these banks and implementing capital recovery plans to mend the capital shortfalls over time.
“We are in a completely free floating position and there is no intervention in the market,” said Ahsan H. Mansour, Governor of Bangladesh Bank.
However, IMF officials remained skeptical about the sustainability of such long-term recovery strategies. They expressed that “it’s not sustainable for weak banks to continue operating indefinitely,” urging Bangladesh to clarify its approach towards restructuring or possible liquidation.
Growing Capital Shortage
According to data from Bangladesh Bank, the total capital shortfall in the banking sector is expected to surpass Tk 1.55 billion by June 2025, a notable increase from Tk 1.1 billion in the previous quarter.
Among the 61 banks operating, 24 have failed to meet the minimum capital requirements. This includes four state-owned commercial banks, two specialized banks, and 18 private commercial banks.
Central bank officials claimed there have been no defaults on newly issued loans in the past year, attributing the current default wave to risky loans given during the previous government’s tenure.
IMF Comments on Foreign Exchange Market
In a separate discussion later, IMF agents met with Governor Mansour about the current state of the foreign exchange market. The IMF team remarked that Bangladesh’s exchange rate system still isn’t fully reflecting a volatile market.
Governor Mansour refuted this, asserting, “We are in a completely free floating position and there will be no intervention in the market.” The IMF then questioned why the central bank continues to buy US dollars if that’s the case. Mansour responded by explaining that countries dependent on exports and remittances consistently buy dollars, and even Japan partakes in this practice.
He added that the central bank procures excess dollars to stabilize the market, especially as import demand has decreased and local banks have sufficient foreign currency.
Concerns About Loan Rescheduling Policy
The IMF also provided feedback on Bangladesh’s new loan rescheduling policy, particularly the absence of a cooling-off period for these restructured loans. Delegates recommended that such loans shouldn’t be classified as disbursable immediately; instead, a monitoring phase should be introduced to gauge borrower repayment behaviors.
Officials from Bangladesh Bank acknowledged that the current policy doesn’t include these provisions but argued that their lending practices for defaulters are already more stringent than those in several other countries. “Our framework reflects the reality of Bangladesh’s economy,” noted a senior official, suggesting that the IMF largely agreed with this viewpoint.
