BB advises banks to remain alert about impending risks
Siddique Islam | Sunday, 15 March 2009
The central bank has advised the local banks to remain cautious about impending risks involving credit, market, liquidity and other related aspects to face the ongoing global economic recession.
"The present global financial turmoil highlights the importance of addressing unexpected aspects of credit, concentration, market, liquidity, legal, reputation, and all other types of risks by the local banks," the Bangladesh Bank (BB) said in its latest financial sector review.
A senior official of the central bank told the FE Saturday that banks should select their borrowers having good track record for making fresh investment against the backdrops of the ever-changing commodity prices due to the global financial meltdown.
"The banks will have to watch closely the prices of and demand for commodities both in local and international market to avoid any financial risk," the BB official added.
The important agenda for Bangladesh would be to convert the learning from the global crisis into an opportunity for developing risk mitigating strategies, the review, prepared by the central bank policy analysis unit (PAU), recommended.
"Obviously, a major concern of the financial sector policy stance would be to bring into existence an appropriate institutional framework and regulatory structure for the financial sector," the review, released recently, added.
In this context, it is important to recognise that under the market based financial system if no regulations exist, the market is likely to direct less credit to sectors having activities where externalities are present and there exists divergence between private and social returns, it said.
Under such circumstances, in addition to playing the role of investment coordinator, market-consistent interventions by the central bank might be necessary to ensure adequate credit flow to the priority sectors from the point of view of poverty reduction and social development.
The review also estimated that the gross domestic product (GDP) growth is likely to be around 6.0 per cent by the end fiscal 2008-09 while inflation will come down to 7.8 per cent on an average basis.
The 12-month average inflation rose to 10.06 per cent in September 2008, which fell afterwards reaching 8.46 per cent in January last.
"If the current trends are maintained, it is likely that the average inflation would fall to around 7.8 per cent in FY09," it noted.
Bangladesh's financial sector has shown remarkable resilience to the upholding global financial turmoil and slowing in high income countries, largely due to the country's insulation from international capital markets and negligible role of foreign portfolio investors, the central bank said.
"This resilience also derives partly from strengthened policy frameworks and macroeconomic fundamentals," the review added.
"The present global financial turmoil highlights the importance of addressing unexpected aspects of credit, concentration, market, liquidity, legal, reputation, and all other types of risks by the local banks," the Bangladesh Bank (BB) said in its latest financial sector review.
A senior official of the central bank told the FE Saturday that banks should select their borrowers having good track record for making fresh investment against the backdrops of the ever-changing commodity prices due to the global financial meltdown.
"The banks will have to watch closely the prices of and demand for commodities both in local and international market to avoid any financial risk," the BB official added.
The important agenda for Bangladesh would be to convert the learning from the global crisis into an opportunity for developing risk mitigating strategies, the review, prepared by the central bank policy analysis unit (PAU), recommended.
"Obviously, a major concern of the financial sector policy stance would be to bring into existence an appropriate institutional framework and regulatory structure for the financial sector," the review, released recently, added.
In this context, it is important to recognise that under the market based financial system if no regulations exist, the market is likely to direct less credit to sectors having activities where externalities are present and there exists divergence between private and social returns, it said.
Under such circumstances, in addition to playing the role of investment coordinator, market-consistent interventions by the central bank might be necessary to ensure adequate credit flow to the priority sectors from the point of view of poverty reduction and social development.
The review also estimated that the gross domestic product (GDP) growth is likely to be around 6.0 per cent by the end fiscal 2008-09 while inflation will come down to 7.8 per cent on an average basis.
The 12-month average inflation rose to 10.06 per cent in September 2008, which fell afterwards reaching 8.46 per cent in January last.
"If the current trends are maintained, it is likely that the average inflation would fall to around 7.8 per cent in FY09," it noted.
Bangladesh's financial sector has shown remarkable resilience to the upholding global financial turmoil and slowing in high income countries, largely due to the country's insulation from international capital markets and negligible role of foreign portfolio investors, the central bank said.
"This resilience also derives partly from strengthened policy frameworks and macroeconomic fundamentals," the review added.