Three troubleshooting taskforces to resolve crises, liquidity crunch

No more central-bank liquidity support to weak banks by printing money rather temporary assistance will be facilitated through the interbank money market, with the regulator acting as guarantor.
Bangladesh Bank's new Governor, Dr Ahsan H. Mansur, reaffirmed the stance while spelling out a bailout plan for the banking sector in a meeting Wednesday with bankers.
"The banking system cannot be jeopardized because of the issues facing seven or eight banks," the governor told the meeting, where the formation of three troubleshooting taskforces was decided.
He emphasized that, while the BB will offer limited and short-term liquidity support to safeguard depositors' interests, this assistance would be channeled through the interbank system where Bangladesh Bank will serve as the guarantor.
Dr. Mansur notes that these banks have been struggling for a prolonged period, and the central bank's intervention aims to make sure depositors can retrieve their money.
He urges depositors not to panic and to avoid mass withdrawals, requesting that they withdraw only what they need and give the banks time to recover.
"I want to make it clear that the entire banking sector will not be harmed due to the challenges facing by these seven or eight banks."
The governor notes that approximately Tk 2.0 trillion would be required to fully resolve the liquidity crisis of these banks, striking a note of caution that such a move could significantly exacerbate inflation.
He also revealed that a substantial amount of money had been laundered abroad through these banks, contributing to their liquidity crises.
The governor assures that efforts are underway to recover these assets, both from domestic and overseas sources.
Following the 'Bankers' Meeting', which was also attended by senior officials of the BB, including Deputy Governor Ms. Nurun Nahar, Association of Bankers Bangladesh (ABB) Chairman Selim RF Hussain shared insights with the media people.
He disclosed that the BB would form three separate taskforces to address the challenges in the country's banking sector.
These taskforces will focus on managing non-performing loans, strengthening the central bank, and enhancing the legal frameworks.
This bankers' meet happens to be the first since Dr Mansur assumed office on August 20, following the August-5th changeover in state power through a student-people uprising. It is usually held every three months.
Mr. Hussain, who is also Managing Director and CEO of an SME-focused bank ---BRAC Bank---mentioned that experts from both domestic and international institutions would be engaged to conduct diagnostic tests of the banking sector.
He also notes that the situation regarding the opening of letter of credit (LC) has now stabilized.
Mr. Hussain points out that four public banks have dues ranging between US$1.5 billion and $2.0 billion, and once these issues are resolved, the dollar situation is expected to stabilize further. He hints that it may take four to six months to fully resolve the matter.
Additionally, he mentions, the central bank governor is committed to increasing the policy rate by 10 per cent in the coming months to curb inflation, which currently stands at around 11-12 per cent.
"Had the policy rate been raised earlier, inflation would have been much lower by now," he remarks. Mr. Hussain also notes that the governor supports a liberal interest regime and has removed all restrictions, even lending-related conditions.

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