BB not satisfied with financial stability in 5 months
The Bangladesh Bank is not satisfied with the level of financial stability achieved over the past five months under the interim government. Despite some progress, significant challenges remain in stabilizing the country’s financial sector.
BB Executive Director and Spokesperson Husne Ara Shikha shared these views at a press conference on Tuesday (January 7). She noted that while financial losses have been reduced, the overall stability is still far from satisfactory.
Progress and challenges
Husne Ara Shikha highlighted several initiatives undertaken in recent months, including: Restructuring commercial banks, establishing a banking task force, stabilising the dollar market, and controlling inflation.
“These efforts have yielded some positive outcomes, but achieving complete stability will require more time,” she said. “Financial fears have been mitigated to some extent, but the situation remains fragile.”
Money laundering investigations
Addressing concerns about money laundering, she said, “By the end of 2025, we expect to have clear data on how much money was laundered, through which banks, and to which countries. While recovering laundered funds is a lengthy process, designated agencies are actively working on it, though details are withheld for security reasons.”
Inflation and policy measures
To combat inflation, BB has repeatedly raised policy interest rates. “We anticipate a decline in inflation by January. However, if inflation persists, further rate hikes may be necessary,” she warned.
Business leaders have expressed dissatisfaction with higher interest rates, which increase borrowing costs and slow investment. “Inflation control cannot rely solely on interest rate adjustments. Issues like infrastructure development, energy supply, and communication systems also play critical roles,” she added.
Private sector credit growth slumps
Private sector credit growth has hit a three-and-a-half-year low, standing at 7.66% in November 2024, compared to the same period the previous year. This marks the lowest growth since May 2021. The central bank had set a target of 9.8% growth for July-December 2024, which remains unmet.
The decline is attributed to reduced loan disbursement due to crackdowns on fraudulent and unnamed loans, suspension of new loans by 11 weak banks whose boards were recently overhauled, and these banks are struggling to meet depositor demands, further limiting private sector lending.
Shift to government securities
In response to falling private loan demand, many banks have shifted investments toward government treasury bills and bonds, which offer secure profits. “While loans carry a risk of default, treasury bills and bonds ensure returns, leading to increased operating profits for some banks in 2024,” said the spokesperson.
Outlook
Despite these challenges, BB remains optimistic about long-term improvements. However, achieving sustainable financial stability will require coordinated efforts from other institutions and comprehensive reforms across various sectors.
