Govt to form banking commission soon

The interim government will soon form a banking commission, a longstanding demand from economists, to bring about reforms aimed at salvaging the financial sector, which has been suffering from high default loans and weak governance.

Besides, a paper on the overall situation of the financial sector and a roadmap for the reforms will be published within the first 100 days of the interim government's tenure, according to a statement from the chief adviser's office yesterday.

The disclosure came following a meeting between the interim government's Chief Adviser Prof Muhammad Yunus and recently appointed Bangladesh Bank (BB) Governor Ahsan H Mansur.

The Centre for Policy Dialogue (CPD) has long been suggesting that the government form a banking commission in view of the deteriorating condition of the sector, which has been plagued by loan scandals, an increasing burden of toxic loans, and political and vested interests.

Last week, the CPD said public trust in the banking sector had been eroded due to the continuous deterioration of the sector's health and inadequate measures taken by the policymakers of the former government.

"A goal-specific, time-bound, transparent, unbiased, inclusive, and independent banking commission should be formed to bring transparency to the prevailing situation and identify the root causes of the manifest problems and suggest credible measures for improving the situation sustainably," it said.

The CPD added that sporadic measures had proved unsuccessful as the nature and depth of the problem require comprehensive due diligence and structural reforms.

In the face of these demands, the previous Awami League government, which was toppled by a mass uprising on August 5, announced its intention to establish a banking commission.

But those promises never materialised.

It was also agreed at the meeting that the contractionary monetary policy stance would be maintained to bring down inflation, which hit 11.66 percent in July, the highest in 13 years.

BAND FOR CRAWLING PEG WIDENS

To increase the flow of foreign exchange, a decision has been taken to increase the band of the crawling peg, which allows fluctuations of the exchange rate within a predefined range, to 2.5 percent from 1 percent.

The revision comes more than three months after the BB first introduced the crawling peg, moving away from administered rates of US dollars in its bid to allow demand and supply to determine the exchange rate gradually.

"It is expected the liquidity flow in the interbank foreign exchange market will increase and the volume of foreign exchange will rise soon," said the statement.

Yesterday, the volume of transactions in the interbank foreign market stood at $14.7 million, according to the BB.

The central bank introduced a crawling peg mid-rate of Tk 117 in May this year by allowing over 6.3 percent deprecation of the taka, which has significantly lost value in the last two and a half years amid falling foreign exchange reserves.

Bangladesh had $48 billion in its forex reserves at the end of August 2021 but that came down significantly to $25.92 billion at the end of July this year.

However, as per the International Monetary Fund's calculation method, which the BB introduced in July last year to reflect the country's capacity to cover import bills, the reserves stood at $20.48 billion at the end of last month, according to BB data.

Central bank data also showed that Bangladesh's taka lost 25.69 percent in value, hitting Tk 118 per dollar yesterday compared to Tk 93.88 per dollar in July 2022.

Syed Mahbubur Rahman, managing director and chief executive of Mutual Trust Bank Ltd, said increasing the band of crawling peg will bring about discipline in the market.

"I think it is a good move," he said.

Md Shaheen Iqbal, deputy managing director and head of treasury and financial institution at BRAC Bank, said the increase in the band would be helpful as it would enable banks to make transactions closer to the market rate.

At present, foreign exchange houses are offering each US dollar for over Tk 119.

"So, as the band has been increased, transactions will take place legally. The flow of dollars and the overall transaction will increase. This will help the exchange rate reach an equilibrium," he said.

Iqbal also welcomed the move to form a banking commission, saying it would be instrumental to the revival of the banking sector.

"This is positive. If the problems faced by various banks can be identified, actions can be taken. This will ultimately increase the confidence of customers," he said.

Rahman added that a roadmap would be helpful for all banks.

"It is good to have a task force so long as there is a delineation of the responsibilities of the commission, which should be formed with persons that have credibility."