Bangladesh Bank Calls for Increased Liquidity Support for Struggling Banks
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Loading... - MAHIRA DHAR
- 12 Nov 2024
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On Monday, the Bangladesh Bank (BB) urged stronger banks to extend more liquidity support to weaker banks that are currently facing challenges in repaying depositors. This call comes amid growing concerns over the financial stability of certain banks and their ability to meet obligations, particularly regarding payments against letters of credit (LCs).
BB Governor Ahsan H Mansur convened a meeting with representatives from 17 banks, including both state-run and private sector institutions. The discussion focused on several critical issues affecting the banking sector, including:
- The liquidity condition of weaker banks
- The dollar market situation
- Credit card interest rates
- Write-off policies
- Dividend distribution capabilities
- Mandatory diploma examinations for bankers
Husne Ara Shikha, the executive director and spokesperson for Bangladesh Bank, reported that the governor emphasized the need for banks with strong liquidity positions to provide additional support to those in crisis.
The meeting also addressed the issue of delayed payments against letters of credit, which have led to reputational damage for the country and created difficulties for other banks. The governor warned that any future delays in LC payments would result in administrative actions, including restrictions on the offending banks from opening new LCs.
Governor Mansur also cautioned banks against manipulating the dollar market by hoarding dollars to sell at inflated prices or profiting from cross-currency transfers. This practice could exacerbate the liquidity crisis and undermine market stability.
During the meeting, officials from private banks requested permission to raise credit card interest rates, arguing that current rates do not adequately cover operational costs. They also proposed changes to the write-off policy, suggesting that lawsuits should be initiated immediately after write-offs rather than waiting for a two-year period.
The Bangladesh Bank has been actively restructuring the boards of troubled banks, particularly following the fall of the Awami League government. Since August 20, the central bank has changed the boards of 11 banks, with eight still facing significant liquidity challenges. Six of these banks are in such dire straits that many of their branches have nearly ceased cash transactions, leading to increased pressure on branch managers and staff from depositors.
To mitigate the liquidity crisis, the Bangladesh Bank has been facilitating liquidity support for weaker banks through the interbank market, providing guarantees on behalf of these troubled institutions. Over the past month and a half, stronger banks have extended approximately Tk 5,585 crore in liquidity assistance to help stabilize the situation.
The Bangladesh Bank's proactive measures to encourage stronger banks to support their weaker counterparts are crucial for maintaining the overall stability of the banking sector. As the central bank continues to address these challenges, the cooperation of all banks will be essential in restoring confidence among depositors and ensuring the smooth functioning of the financial system.
