Ten of Bangladesh’s banks have been diagnosed as “weak” and corrective measures are being taken to protect the interests of “depositors”, according to a statement on Thursday.

The central bank decided on their “weak bank” status based on four indicators – their classified loans, capital adequacy, loan-to-deposit ratio and amount of provisioning.

“We have already started a process of discussion on an individual basis to resolve the problems of identified weak banks,” Bangladesh Bank Governor Abdur Rouf Talukder told reporters, without mentioning the name of any bank.

As part of the recovery plan, the banks will have a three-year business plan, the progress of which will be monitored by a senior central bank official.

The central bank has identified weak banks to protect depositors’ interests, according to the governor.

It also raises hopes that the country’s volatile foreign exchange market will be stable soon thanks to a downward trend in import orders alongside an increase in remittances.

“We expect the foreign exchange market to be stable within two months,” the BB governor said when asked during a “meet the press” program.

He said the interbank exchange rate would be fixed in accordance with market requirements when the foreign exchange market returns to normal.

Currently, all regular banks set their exchange rates, including interbank rates, in accordance with BB policy.

“The exchange rates were set based on foreign currency outflows and inflows, not the foreign exchange reserve position,” the central bank chief explained.

The central bank is currently working to narrow the gap between currency outflows and inflows, according to the governor.

In July 2022, the opening of letters of credit (LC) fell to $6.0 billion from $8.0 billion per month before following close monitoring as well as other regulatory measures taken by the central bank to ease import payment obligations on the economy under a government-declared austerity course.

“Imports of luxury items as well as cars fell drastically in July following such scrutiny,” he revealed.

He also said the central bank continues to provide foreign exchange support to banks to settle import payment obligations, especially for essential items including fuel oils.

It sold an additional $45 million directly to various banks on Thursday to help them meet growing demand for the greenback as rising global prices led to escalating import costs with resulting pressures on reserves of Bangladesh, as well as many other countries.

On Wednesday, the central bank sold $40 million to two state-owned commercial banks on the same grounds.

The BB has so far injected $1.35 billion of reserves directly into commercial banks as liquidity support for import payments in the current financial year (FY), 2022-23.

In FY22, the central bank sold $7.62 billion of reserves to banks for the same purpose.

Banks are now facing a liquidity “crisis” and are constantly buying greenbacks from the central bank to settle their import payment bills, the BB chief added.

“The withdrawal of funds (in local currency) amounting to more than 780 billion taka from the market in FY22 through the sale of more than 7.50 billion dollars to banks was the main reason for the liquidity crisis,” he notes.

He also said talks on lifting the lending ceiling would be completed after the liquidity situation in the banking system improves.

“We are now working to improve the money supply of the nation’s banking system,” the governor said while answering another question.

In Bangladesh, money supply as a proportion of gross domestic product (GDP) is around 43% while it is 88% in India, according to the BB Governor.

“Definitely, our economy is now under pressure,” Mr. Talukder said while answering another question.

He also said that import-driven inflation is putting great pressure on the economy.

A positive trend will be visible in the next 2-3 months as the government and central bank are working on the issue, he adds.

“We are now trying to contain inflation by controlling growth on the demand side while also intervening on the supply side,” he explains.

The governor also said that the central bank will continuously provide policy support for the development of the country’s secondary bond market.

“The amount of loans classified in the banking sector will be reduced if the bond market develops,” he notes.

Among others, Central Bank Deputy Governors Kazi Sayedur Rahman and Abu Farah Md. Nasser and Chief Economist Dr. Md. Habibur Rahman also addressed the press conference held at the central bank headquarters in Dhaka. .

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