The Dhaka-visiting International Monetary Fund (IMF) team on Sunday inquired about government actions for bringing down non-performing loans at the state-owned banks and progress on automated fuel pricing aimed at relieving Bangladesh's subsidy burden.
During a meeting with the Financial Institutions Division (FID) at the Bangladesh Secretariat, the IMF team expressed disappointment over the rising non-performing loans (NPL) at state banks, said sources.
Besides, the authorities mentioned that dynamic fuel pricing -- which was promised to be introduced in September this year -- may take a few more months.
Through a PowerPoint presentation, the Financial Institutions Division officials informed the IMF officials about the measures taken to lower NPLs and the achievements made so far.
They highlighted the recent scenario of the banking sector, liquidity stress in banks, foreign-currency-reserve situation and the measures taken for enacting banking sector-related laws.
The IMF team was led by Rahul Anand, IMF's mission chief for Bangladesh, while FID Secretary Sheikh Mohammad Salim Ullah led his team.
The IMF team has been on a visit to Bangladesh since last week to review the progress in meeting the conditions the agency set while granting a $4.7-billion loan to Bangladesh this year.
Bangladesh received the first tranche of the loans, some $476.2 million, in January. Releasing the second tranche of the loans, expected by November, will depend on the country meeting the IMF conditions set till September.
The agency had set two conditions for the FID to meet by September for the first review.
One is to report banks' rescheduled loans alongside non-performing loans in the annual financial stability report, while the other is to submit to the parliament the Bank Companies (Amendment) Act and the Finance Companies Act by September 2023.
Central bank data shows that till June this year, the volume of total NPLs in the banking sector stood at Tk 1.56 trillion, which is 10.11 per cent of total loans. The NPLs in the state-run commercial banks reached 25.01 per cent and in private commercial banks 6.46 per cent.
In its April-June quarterly publication, the Bangladesh Bank mentioned that the ratio of non-performing loans to total loans in the banking sector experienced an upswing, "mostly driven by withdrawing relaxed loan repayment policies and weaker business activities".
An official who attended Sunday's meeting said the IMF team was also told that the Bank Companies (Amendment) Act has already been passed in the parliament, while the submission of the Finance Companies Act and three other acts is in process.
Sources said the FID officials informed the IMF team that measures have been taken to lessen NPLs in the public sector banks as they bear most of the NPLs.
When granting a loan to Bangladesh earlier this year, the IMF had set conditions to lower overall NPLs in the banking sector to below 10 per cent.
Later, the IMF team met with two deputy governors of the central bank for an assessment of banking sector performance, NPLs, credit supply and demand, profitability, forex shortages and liquidity.
They also discussed the performance of commercial banks, bank subsidiaries, and equity markets, NPL classification procedures, write-off policies, financial incentives and digital banking.
The team also had meetings with the managing directors of four state-owned banks on the day, focusing on the reduction of NPLs.
IMF inquires about automated fuel pricing progress
On Sunday, the IMF team also met with Energy Secretary Md Nurul Alam and inquired about the progress of introducing an automated fuel pricing formula to adjust petroleum prices in line with movements in the international market.
The delegation also inquired about the progress in reducing government subsidies in the power and energy sector, said sources.
The Energy and Mineral Resources Division (EMRD) secretary briefed the IMF delegation about the updates from the government's side, sources added.
The team was told that the execution of the dynamic pricing formula would take a few more months.
Although Bangladesh has been raising domestic fuel and energy prices, the IMF said that Bangladesh's subsidies for gas and electricity amount to about 0.9 per cent of gross domestic product (GDP) in fiscal year 2022-2023, compared with 0.4 per cent of GDP in FY21 and 0.5 per cent in FY22, reflecting elevated global commodity prices.
According to the IMF, "In addition, barring further global price shocks, the Bangladesh authorities have committed not to increasing these subsidies during the program and explore options to gradually reduce them further, while scaling up social protection schemes."
Officials said many countries, including neighbouring India, follow an automated formula for fixing petroleum prices. Domestic petroleum prices go up when the price of petroleum rises in the international market and decrease in the domestic market when it slows down internationally.
But Bangladesh never followed the formula, which was a boon for the country, as domestic petroleum prices were higher than international prices for many years before the Russia-Ukraine war broke out in February 2022.
Bangladesh earlier raised retail power tariffs three times by around 5.0 per cent each time over the past three consecutive months of January, February and March this year.
In August 2022, Bangladesh raised the prices of refined petroleum products by up to 51.68 per cent.
syful-islam@outlook.com, azizjst@yahoo.com
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