A regulatory ruling comes for Bangladesh's commercial banks to heed the prompt corrective action (PCA) framework or face the risk of tough actions, as interbank borrowing overshoots interest corridors.
As part of government's financial-sector reform initiative, Bangladesh Bank (BB) governor Abdur Rouf Talukder issued the binding instructions to top executives of the country's scheduled banks at Wednesday's bankers' meet held at the BB headquarters.
The governor also directed the leading bankers to carefully and smartly do the liquidity management as the central bank will continue contractionary monetary stance until its inflation-containing target of 6.0 per cent is achieved.
At the same time, the banking regulator cautioned the banks to keep interbank borrowing within the SLF (standing lending facility) rate of 9.50 per cent, the upper ceiling of the interest rate corridor (IRC) and prevent breaching the corridor to avert regulatory measures.
Alongside key points of the latest monetary-policy statement, BB spokesperson Md Mezbaul Haque said they shared the PCA framework in detail with the CEOs and managing directors of the banks and asked them to do their banking operations keeping it in mind.
He said the central bank will implement the framework from March 31, 2025 based on the annual audited financial statements for the period ending December 31, 2024.
"Any bank failing to achieve the target level mentioned in the framework will face consequences like mergers and acquisitions," the spokesperson said on a note of alert from the regulator.
Mr. Haque, also an executive director of the central bank, said the bankers were also instructed to properly use ADR (alternative dispute resolution) appointing qualified legal experts to lessen the volume of non-performing assets.
He said the governor also instructed the bankers to give more emphasis on the cash-recovery process of the classified loans to further bolster their financial base by way of raising the share of performing assets.
Emerging from the meeting, chief executive officer and managing director of Mutual Trust Bank PLC Syed Mahbubur Rahman said the BB governor told them that they would bring necessary reforms in the industry in the coming days as the existing law (bank company act) has given them the mandate to do so.
"We have been asked to take necessary preparation to improve the banks' financial base in line with the PCA framework, which is very important," he said.
Chairman of the Association of Bankers Bangladesh (ABB), an association of chief executives of the country's commercial banks, Selim RF Hossain sees the PCA framework a very important tool to discipline banking operations.
As defined, PCA is kind of framework through which the banks will be categorised for the first time setting various requirement perquisites and the banks were asked to assess their respective performance in accordance with the framework periodically.
"It will certainly help us know exact status of the bank and take corrective measures, if necessary, to avoid being positioned in the underperforming category," adds Mr Hussain, also CEO and MD of Brac Bank.
Underperforming banks might face regulatory measures like suspension of opening new branches, giving fresh loans, taking deposits, giving cash or stock dividends, he says about some of the envisaged penalties.
"I think it is a good step to bring stability in the sector discouraging malpractices," the Brac Bank top executive adds.
The central bank discussed the possible move of crawling peg which will help bring stability in the forex market after reducing the speculation over rates of the foreign currencies, according to the experienced banker.
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