Government liabilities in import-LC backpay can be cleared over next 5-6 months, aided by remittance rebound that raised Bangladesh's latest foreign-exchange reserves to US$24.30 billion, and fresh aid commitments.
Bangladesh Bank (BB) Governor Dr Ahsan H. Mansur assures and urges the corresponding foreign banks to keep faith in the country's commercial banks as overall macroeconomic situation, reserves of foreign currencies in particular, continues improving because of various prudent policy steps taken under the interim regime.
He held out the assurance Tuesday as there has been a buildup of government liabilities on account of LCs (letter of credit) for import of commodities like fertilisers, power and petroleum products in the wake of forex crunch in the past.
The central-bank governor made the remarks at a virtual meeting with members of The Association of Bankers Bangladesh (ABB) and representatives from more than 120 corresponding banks across the globe.
The parley took place at a time when majority of the corresponding global lenders either suspended credit supports or reduced the credit limits to the Bangladeshi commercial banks for what is dubbed trust deficit after the fall of the Sheikh Hasina government following a student-mass uprising last month.
Citing indicators of improving macroeconomic condition, the governor said the inflow of foreign currencies, particularly from remitters, kept growing in recent times while multilateral lending agencies like World Bank and the Asian Development Bank (ADB) committed providing additional funds.
At the same time, exchange rate against the US dollar stabilizes on the market while the banking regulator is undertaking various reform initiatives to bring stability in the struggling banks through ensuring corporate governance.
He reminds that Bangladesh never failed in paying dues in the past, either. "So, there is nothing to be worried. You (corresponding banks) can keep faith on us," the governor was quoted as saying by an ABB member attending the meeting.
Regarding governmental LC-related liabilities, the governor said the entire public liability on account of LCs was $2.0 billion and the government had so far managed to clear $800 million.
To clear the remaining part ($1.20 billion), the newly appointed central-bank governor said the BB assists the banks to clear $50-$60 million per day.
"We're hopeful that we'll be able to clear all the dues in the next 5-6 months," he assured the corresponding overseas banks.
The governor also assured the corresponding banks of the central bank's support in the event of problems involving payments by individual commercial banks.
Seeking anonymity, an ABB member said majority of the corresponding banks almost suspended the credit support while some of them reduced the credit limits to the local commercial banks in recent days that put the domestic lenders in serious trouble in terms of LC opening.
To restore confidence of the foreign banks in the country's banking system, he said, the apex body of top executives of the commercial banks, known as ABB, arranged the much-needed virtual consultation with the governor in the wake of the developments.
"It's a huge meeting as some 561 participants from across the globe attended the meeting. And the governor touched on every single matter of concerns of the overseas banks regarding the credit support," he says.
Corresponding banks normally assist the local commercial banks in facilitating in areas like LC confirmation, OBU loans and UPAS (Usance Payable at sight) LC financing.
They have already formed a taskforce to look into asset-quality assessment of the 10 troubled banks, whose boards have already been changed. "We're in tough with WB, ADB, IMF and other development partners to help us in determining the asset quality of the banking system, particularly with those weak banks, and recapitalise them for a healthy banking system here."
The most encouraging part is cash flow of the largest private-sector commercial bank, Islami Bank, becomes positive getting much more deposit, he said.
"Now, we will be looking after these 10 banks first, then we will be looking into another 10 banks. Our objective is to reassess the whole banking system and determine how much regulatory tightening and injection of capital that will be needed to make the banks fully compliant," he said.
Meanwhile, the central bank of Bangladesh said on the day that the country's foreign- exchange reserves remained stable, driven by a significant increase in remittance inflows.
Spokesperson for the BB Husne Ara Shikha updated the forex position of the country to reporters, saying that the remittance inflows increased "significantly" of late.
As per the BB statistics, the reserves increased by more than 15 per cent in the fiscal year 2023-24 on a year-on-year basis of accounting.
During the immediate-past fiscal year (2023-24), Bangladesh received a total of $25.38 billion in remittances, up from $21.99 billion in the fiscal year 2022-23.
Ms. Shikha also notes that there had been a surge in remittance inflows in August compared to July of this year, coming to $2.215 billion.
And in the first 14 days of this September, remittance inflows amounted to $1.167 billion.
She emphasizes that the increase in remittances sent by Bangladeshi expatriates has helped bolster the country's foreign-exchange reserves.
"Bangladesh Bank believes the decline in reserves has halted," says the new BB spokesperson.
Currently, foreign-exchange reserves with the Bangladesh Bank stand at $24.30 billion. In IMF arithmetic called BPM-6, this amount is approximately $20 billion.
Ms. Shikha also mentions that banks are now able to buy and sell dollar independently through interbank mechanism.
The current exchange rate ranges between Tk 118 and Tk 120 per dollar. The difference between the dollar prices in the banking channel and on the curb market is now less than 1.0 per cent.
"The interbank market is now more active than before, which is also a reason behind the stability of foreign-exchange reserves," she explains in the briefing.
"The exchange rate has been made market-based."
Bangladesh's foreign-exchange reserves had been depleting rapidly since the beginning of 2022 due to international turmoil, including the war in Ukraine. High import costs, driven by increased commodity prices on the international market, also contributed to this decline.
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