BB asks banks to prepare for harsh reforms

The Bangladesh Bank (BB) is going to bring reforms to the banking sector after getting the go-ahead from the new government, and the banking regulator asked senior executives to prepare for those reforms at a meeting yesterday.

Weak banks will be subject to mergers and acquisitions, a move that chief executives were asked to discuss among themselves.

The central bank's instructions came during a bankers' meeting held at the BB headquarters in Dhaka. Bangladesh Bank Governor Abdur Rouf Talukder presided over the meeting, which was attended by chief executives of commercial banks.

The BB governor said that around 40 of 61 total banks were performing well, but the remaining 21 were weak and would be subject to mergers and acquisitions soon.

However, in 2022, the BB governor had identified 10 weak banks.

The BB head asked managing directors and CEOs of banks to discuss how to merge the balance sheets of weak banks with sounds bank, adding that the central bank would provide policy support if necessary, The Daily Star learned from officials present at the meeting.

A chief executive of a private commercial bank, seeking anonymity, told The Daily Star that the BB governor said the government had given him the signal to bring good governance to the banking sector by any means necessary and while ensuring no political or influential groups obstruct the central bank.

The source added that the central bank has 17 action plans to bring good governance to the banking sector and those plans would be discussed at the central bank's board meeting on February 4.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told The Daily Star that they welcomed reforms.

"Reforms in the banking sector are very essential now," he said.

Meanwhile, Selim RF Hussain, chairman of the Association of Bankers, Bangladesh, and managing director of BRAC Bank, said after the meeting, that reforms adopted by the central bank were already having an impact.

"We expect that we will see stability in the forex market due to the crawling peg, which will be introduced by the banking regulator."

After the meeting, BB Executive Director and Spokesperson Md Mezbaul Haque told journalists bringing good governance to the banking sector was a widely discussed issue in the meeting.

He said that bringing good governance to the banking sector was a part of the new government's election manifesto and the central bank was working towards it.

He added that the central bank had already introduced a Prompt Corrective Action (PCA) Framework, aimed to bolster financial stability and instill public confidence in the banking sector.

The PCA will be applicable from March, 2025.

If needed, the central bank will take action for the merger and acquisition of weak banks under the framework, as per the BB spokesmen.

Haque also said that the governor asked banks to take preparations to manage their liquidity because the central bank will continue to tighten its monetary policy until inflation cools.

The BB head also thanked managing directors for their initiatives to reduce trade-based money laundering by scrutinising overinvoicing.

Since a growing number of defaulted loans in both public and private banks are stuck in lawsuits, the BB governor asked banks to use the alternative dispute resolution (ADR) to reduce the number of lawsuits.

The BB will also introduce a swap arrangement with the banks for exchanging USD and local currency. Banks that face a liquidity crisis can take liquidity in exchange of USD under the arrangement, said BB spokesman.