IMF mission in city to look into state of banking sector

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Nazmul Ahsan A high-powered International Monetary Fund (IMF) mission is now in Dhaka on a week-long visit to examine the state of the country's ailing banking sector and review the government's related policies to shore up the troubled financial sector. The mission is expected to propose a raft of recommendations to revive the capital-hungry public sector banks and tough measures to recover the big amount of money swindled from such banks, particularly from Sonali and BASIC, sources in the Ministry of Finance (MoF) and Bangladesh Bank (BB) said. "The mission members will hold a meeting with us today (Sunday) to review the entire financial sector including banking companies," Amalandu Mukherjee, Additional Secretary, Bank and Financial Institution Division of the MoF, told the FE Saturday. The mission, led by Peter Lohmus, head for Asia Pacific region, is scheduled to hold a series of meetings with the MoF officials and the BB. The IMF mission will also hold meetings with Finance Minister AMA Muhith and BB Governor Atiur Rahman. "Recapitalising plan of the government for state-owned banks and the progress in recovering the money laundered from Sonali Bank by Hall-Mark Group are two major issues to come up in our discussion," another finance official said. The capital shortage of state-owned banks (SoBs) was estimated at more than Tk 200 billion as of June last. Earlier, the banking division sought Tk 170 billion from the Finance Division to make up for the shortage of the SoBs' funds. A senior BB official said the IMF mission was pressing for finalising guidelines on the bank resolution framework and pre-opening inspection of all newly-approved banks. He, however, said they were in the final stage of shaping up the guidelines for preparing the bank resolution framework that would enable the BB to intervene immediately and take appropriate remedial measures in the event of any 'failure' on the part of a bank to cope with any emerging adverse situation. The suggestion of the IMF on bank resolution came about four to five months ago against the backdrop of a good number of large loan scams that were unearthed in some of the country's SoBs, particularly Sonali Bank Ltd. and BASIC Bank, BB sources said. The banks concerned are now faced with the problem of a large shortage of capital, according to a senior BB official said. He said the suggestion of the IMF would help the BB, in case any bank-be it public or private-collapses or fails, to intervene promptly to shore up its financial position and protect the interests of depositors. Another top BB official who was involved in the related process said they just started devising an efficient bank resolution method, based on a number of internationally-practised 'core fundamentals' to deal with the problems faced by any troubled bank. These are: minimising financial and economic costs and contagion risks in case a bank faces the risk of collapse, ensuring protection of depositors, protecting shareholders' interest, enacting proper legislation, enhancing supervision, increasing the implementation capabilities of any such bank, and strengthening its capital base. Besides, the proposed bank resolution guidelines would have a policy on how the BB could support a troubled bank with fresh injection of fund, a BB source said.