IMF worried over NPL buildup, cites war risks

The International Monetary Fund (IMF) is worried about the non-performing loan (NPL) buildup in Bangladesh's banking sector and some mismatches on the macroeconomic front, sources say.
During a latest appraisal of the country's economic health-amid multifarious challenges from within and without in the wake of global crises-the Washington-based monetary watchdog wanted to know about planning of the central bank to reduce the volume of classified loans in the near future.
An IMF economic appraisal mission made the observations in a series of meetings with high-ups of the Bangladesh Bank (BB) between July 17 and July 21.
Senior officials of the central bank informed the mission, officially known as staff mission of the IMF, that the BB had already taken some measures to curb the upward trend in NPLs in the banking system.
As part of the measures, the central bank has already identified some 'weak' banks considering their latest position on prime financial indicators, including capital-to-risk weighted-asset ratio (CRAR), advance-deposit ratio (ADR) and NPLs.
The BB governor has decided to meet with chairmen and managing directors (MDs) of the banks separately from next week for setting fresh targets for the key financial indicators of the banks concerned.
"We'll monitor and supervise the performances of indicators closely," a top central banker told the FE on Thursday while replying to a query about the meetings.
The IMF mission's observations come against the backdrop of rising trend in the NPLs in the banking sector despite close monitoring by the central bank.
The amount of classified loans grew by 9.85 per cent to Tk 1,134.41 billion during the January-March period of 2022, from Tk 1,032.74 billion in the preceding quarter (Q4 of 2021).
At the meetings, the mission has also expressed their interest to know about implementation of the latest policy on loan rescheduling and restructuring. The BB has already started process of execution of the policy, the central bankers replied to the mission at the meetings.
As part of the preparations, the central bank already discussed the issues with the chairmen of the commercial banks at a meeting on July 20.
The central bank will also discuss the issue at the next bankers' meeting, scheduled to be held at the BB headhunters in Dhaka on July 25, according to another central banker.
Earlier on Monday, the BB relaxed its loan-rescheduling and-restructuring policy aiming to facilitate the country's overall business activities.
The FE talked to at least five high-ups of the central bank to know about different issues of the meetings with the visiting IMF mission.
At the meetings, the central bank also informed them that the country is trying to contain the inflation through curbing demands instead of raising lending rates.
"We're also working to achieve an 'inclusive' economic growth through enhancing supply sides," another BB official explained.
The mission, headed by its chief at Asia and Pacific Department Rahul Anand and comprising IMF Resident Representative in Dhaka Jayendu De, has also warned Bangladesh that the ongoing economic challenges might linger if the ongoing Russia-Ukraine war prolongs.
The observations were made at a concluding meeting held at the central bank headquarters in Dhaka on Thursday with BB governor Abdur Rouf Talukder in the chair.
The looming economic challenges include upward trend in inflation, volatility on the country's foreign-exchange market, pressures on Bangladesh's overall balance of payments (BoP) and foreign- exchange reserves.
Actually, the gaping gaps in trade as well as the current account reflect the growing imbalance on the external front, thus mounting pressure on Bangladesh's BoP in recent months.
The BB data show that the BoP posted a negative balance of $4.30 billion in the first 11 months of the outgoing fiscal year (FY), 2021-22, against a positive balance of $8.52 billion in the same period of FY'21.
During the meetings, the IMF mission discussed various other macroeconomic issues like growth, inflation, exchange-rate development, implementation of stimulus packages and measures against the spillovers from the war in Ukraine- impact and challenges along with contingency plans.

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