Winds of change in the banking sector: Trust Regains
Since Nobel laureate Dr Muhammad Yunus took charge as Chief Adviser of the interim government, significant reforms have reshaped the banking and financial sector.
Dr Yunus emphasised that these changes aim to create a favorable environment for business and investment while ensuring long-term sustainability. "We are working to protect foreign investments and establish a foundation for free, fair, and participatory elections," Yunus said at a press briefing.
The reforms have already had a noticeable impact. Bangladesh Bank, the central bank, has been actively restoring customer confidence amid the banking crisis. Liquidity support is being provided to struggling banks, with the central bank acting as a guarantor to shore up these institutions.
Extensive banking reforms underway
Bangladesh Bank has embarked on an extensive reform initiative, with noticeable progress in stabilizing the financial sector. Interest rate hikes under a contractionary monetary policy have contributed to stabilizing the exchange rate and controlling inflation. These changes are part of a broader strategy to strengthen the banking sector and regain public trust.
Following the resignation of Prime Minister Sheikh Hasina on August 5 amid mass student protests, Dr. Yunus was sworn in as the head of the interim government on August 8. Since then, several key steps have been taken to restructure the banking sector:
New bangladesh bank governor appointed
After the resignation of former Governor Abdur Rauf Talukder, Ahsan H. Mansoor, a senior economist and former IMF official, was appointed as the new Governor of Bangladesh Bank. Under his leadership, reforms in the financial sector have accelerated, including the restructuring of key institutions.
Reorganisation of 10 bank boards
Bangladesh Bank has dissolved the boards of 10 major banks, including Islami Bank Bangladesh, National Bank, and Social Islami Bank, as part of efforts to restructure the banking sector. The reorganization aims to address governance issues and strengthen oversight. Five more banks are awaiting similar restructuring.
Formation of a banking reform task force
A task force has been formed to assess the current financial health of banks, bad assets, and risks to financial stability. Led by Governor Mansoor, the task force will publish a white paper on banking reforms and propose solutions to improve regulatory systems and reduce political and corporate influence.
International support for reforms
The World Bank and the Asian Development Bank (ADB) have pledged loans to support banking reforms and modernize Bangladesh Bank. Negotiations for a $450 million loan from the World Bank and $1.3 billion from ADB are underway to boost the country's banking sector.
Task force to recover money laundered abroad
The government has also reconstituted a task force to recover assets laundered abroad. For the first time, the Governor of Bangladesh Bank has been made the president of the task force. This group will focus on recovering funds and bringing money launderers to justice.
Action against financial mafias
In response to allegations of money laundering by the S Alam Group, Bangladesh Bank has seized the bank accounts of several prominent figures, including former Exim Bank Chairman Nazrul Islam Majumder and Salman F Rahman. The central bank has assured that the assets of those involved will be sold to return depositors' money.
Targeted liquidity support for weak banks
Rather than printing money to provide liquidity support, Bangladesh Bank has arranged for stronger banks to provide assistance to weaker banks under central bank guarantees. So far, Tk 945 crore in liquidity has been provided to four banks, including First Security Islami Bank and National Bank.
Policy rate hike to curb inflation
To control inflation, Bangladesh Bank has raised the policy interest rate twice, bringing the overnight repo rate to 9.50 percent. This move, part of a contractionary monetary policy, is expected to stabilize the economy and curb rising prices.
Increase in remittances
Following the change in government, remittances have surged. In September alone, expatriate Bangladeshis sent $2.40 billion, an 80 percent increase compared to the same period last year. This inflow of funds is seen as a sign of confidence in the new government’s policies.
Bangladesh Bank's optimism
Bangladesh Bank spokesperson Husne Ara Shikha expressed optimism about the reforms, noting, "We have undertaken extensive changes, and the positive effects are already visible. Confidence in the banking sector is returning, inflation is stabilizing, and we are on track for long-term financial stability."
