bangladesh bank
Market-based interest rate, unified exchange rate from July: Bangladesh Bank
Bangladesh Bank will be returning to market-based interest rate from July with the announcement of the next half-yearly monetary policy statement, which will cover the first six months of the 2023-24 fiscal.
The central bank will also set a unified foreign exchange rate for all sectors, as per the guidelines of the International Monetary Fund (IMF).
Also Read: Despite many challenges, Bangladesh remains one of the fastest growing economies in Asia-Pacific: Visiting IMF team
Md Mezbaul Haque, executive director and spokesperson of Bangladesh Bank, said this today (Sunday) in a press briefing.
The IMF team ended their visit Sunday, having arrived in Dhaka on April 25, to discuss the progress of implementation of the joint action plan for the $4.7 billion IMF loan for Bangladesh.
After the discussion with the IMF delegation, Haque briefed reporters regarding the discussions on Sunday.
Also Read: Bangladesh’s GDP growth rate will overtake China’s in current fiscal year, IMF predicts
Meanwhile the IMF team has expressed satisfaction regarding the progress of reforms in different sectors, the spokesperson said.
Explaining the introduction of a unified exchange rate, he said that a single foreign exchange rate does not mean that the buying and selling rate of the dollar will be the same.
Now there are several exchange rates, but if the difference between them is within 2 percent, the exchange rate can be said to have a single exchange rate.
Also Read: IMF satisfied with progress of BBS’ GDP and inflation data updated under new method
Apart from this, calculation of forex reserves according to the IMF's Balance of Payments and Investment Position Manual (BPM-6) will also be announced in the next monetary policy, Mezbaul said.
The next IMF delegation will visit Bangladesh in October. Some of the reform measures to be carried out under the terms of the loan to Bangladesh are expected to be achieved by September.
The IMF has already disbursed the first instalment of the sanctioned loan. Mezbaul said that the recently concluded visit of the IMF team has nothing to do with receiving the second instalment of the loan.
IMF-Bangladesh Bank meeting prioritizes unified exchange rate and competitive lending rate
A visiting delegation of the International Monetary Fund (IMF) on Tuesday met with the Bangladesh Bank (BB) Governor and discussed updated financial factors along with the progress of reform in the sectors.
A five-member delegation headed by Rahul Anand, IMF Bangladesh Mission Chief, started meeting with the BB officials in the morning on Tuesday, which ended at 3.0 pm.
Md Mezbaul Haque, executive director, and BB spokesperson told reporters that the IMF team discussed updated information on various economic factors with the several departments of BB including the progress in the use of the IMF's loan.
He also said that the visit was a routine process of the IMF's work and the BB participated in the meeting on behalf of the state.
Sources close to the meeting said among the issues prioritized in the discussion are efforts to unify multiple exchange rates, making lending interest rates market-oriented, and the process of calculating foreign reserves under the IMF definition.
During its (IMF) April 25 to May 2 visit the mission will hold meetings with the officials of the Ministry of Finance's Finance Division, Financial Institutions Division, Economic Relations Division (ERD), Bangladesh Bank, and National Board of Revenue (NBR), sources said.
Bangladesh applied to the IMF for a loan to stabilize the economy amid dwindling forex reserves and agreed to pursue reforms on certain issues.
Read more: Bangladesh receives 1st instalment of IMF’s $4.7 billion loan: BB spokesperson Before and after receiving the first $476.2 million tranche in February, Bangladesh took several steps to reform the structure of its financial sector and its policies, including reducing subsidies by raising the price of power and gas, and fuel.
The foreign exchange crisis in Bangladesh eased after the global lender released the first installment of a $4.7 billion loan. After then, World Bank and Japan International Cooperative Agency
The IMF approved about $3.3 billion for Bangladesh under the Extended Credit Facility ECF) and the Extended Fund Facility (EFF) and about $1.4 billion under the Resilience and Sustainability Facility.
Read more: BB set to announce new monetary policy
IMF team due in Dhaka on April 25 to discuss 2nd tranche of $4.7b loan
A team of the International Monetary Fund (IMF) is due to arrive in Dhaka on April 25 to discuss the progress in the use of the first tranche of its US$4.7 billion loan programme for Bangladesh and the release of the second installment.
The Ministry of Finance sources told UNB on Wednesday that during its April 25 to May 2 visit the mission will hold meetings with the officials of the Ministry of Finance's Finance Division, Financial Institutions Division, Economic Relations Division (ERD), Bangladesh Bank, and National Board of Revenue (NBR).
IMF Asia and Pacific Division Head Rahul Anand will lead the team comprising three to four members, the ministry sources said speaking on condition of anonymity.
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Bangladesh received the first tranche of US$476.2 million of the $4.7 billion loan approved by the IMF on January 30.
The entire amount of the loan will be paid in seven installments in three and a half years until 2026. As such there are six more installments left.
A senior official of the ministry said the IMF usually reviews various aspects of compliance before disbursing each tranche. Accordingly, an IMF team will come next September to review the fulfillment of loan conditions before disbursing the second tranche.
Read More: Following IMF advice BBS to calculate inflation on a new base year from March
Usually before each budget announcement, an IMF mission comes to Dhaka to discuss budget assistance. Now that the loan programme is going on with them, besides the budget assistance, the issues of fulfilling the loan conditions will also come up for discussion, said the sources.
India-Bangladesh trade using rupee instead of US dollar could start soon
Bangladesh could soon start trading with India using rupee instead of US dollar, trial for which has been done by Bangladesh Bank recently.The ministry of commerce has placed a written recommendation at the last cabinet meeting regarding the possibility and opportunity of using rupee instead of dollar.
Currently Bangladesh exports goods to India worth around USD 2 billion.
“The use of rupee will start with Bangladesh's $2 billion trade with India. Bangladesh Bank has almost finished all kinds of trials in this regard. Trading in rupee will be introduced in both countries only after bilateral decision on some issues,” an executive director of Bangladesh Bank told UNB.
Read More: Bangladesh Bank yet to allow Indian rupee in foreign trade
Wishing anonymity, he said that banking systems in India and Bangladesh have to sign separate agreements on using rupee.
Meanwhile India-Bangladesh Chamber of Commerce and Industry (IBCCI) has submitted the total trade account to the central bank in the form of a proposal. This initiative is being taken to overcome the existing dollar crisis, sources said.
Bangladesh Bank spokesperson Md Mezbaul Haque said that India-Bangladesh trade, using rupee instead of US dollar, is still in the experimental stage. Some issues still need to be settled.
“There are some bilateral issues that need to be resolved. Then the banks have to prepare. But there will be a positive decision in this regard,” he added.
Read More: Indian businesses eager to invest in various sectors
In response to a question whether there will be a fixed annual dollar quota for opening LCs, he said, LCs will be opened according to the needs of businessmen. But the only source of rupees is from the export earnings of Bangladeshi goods in India.
“We are importing more from India than we export. This is why there is a trade deficit. As a result, the amount of rupee is also being considered,” Mezbaul said.
Currently India is trading in rupees with Russia, Mauritius, Iran and Sri Lanka.
At the Bangladesh-India ministerial meeting on trade, held in the Indian capital New Delhi on December 22-23 last year, India proposed to introduce the rupee as a medium of trade for both countries.
Read More: Bangladesh maintains close ties with all – China, US and India: PM tells CNN
Then, on the sidelines of the meeting of G20 Finance Ministers and Central Bank Governors held in Bengaluru, India on February 24-25, there was a discussion between the two countries about moving the dollar as an exchange currency.
There, Bangladesh Bank Governor Abdur Rauf Talukder and Reserve Bank of India Governor Shaktikanta Das discussed the possibility of such a system using rupee instead of US dollar.
Agricultural credit disbursement on course to meet target
Farm loans disbursement is on course to meet the target as banks have disbursed 68.15 percent of the target in eight months (July-Feb) of the current fiscal.
Bangladesh Bank's latest loan update shows that around Tk 21,660 crores were disbursed in the agriculture sector against the target set for the fiscal of Tk30911 crore.
The update revealed that 12 banks had achieved 100 percent of the target set for the disbursement of agricultural loans in the first eight months of FY2022-23.
However, 14 banks are lagging behind. Even after 8 months, these banks could not distribute even 50 percent of the targeted farm loans.
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Banks that have disbursed more than 100 percent of the target include Bank Al-Falah, Commercial Bank of Ceylon, Habib Bank, State Bank of India, Bank Asia, Dhaka Bank, One Bank, Simanta Bank, Uttara Bank, Citibank NA, HSBC, and Uri Bank.
According to the report, state-owned banks have distributed Tk8,623 crore while foreign and private sector banks have disbursed Tk 12,434 crore.
According to the BB, till February 2023, the disbursement of total agricultural loans stood Tk 51,236 crores. Of this, Tk20,986 crores have been paid back,so the loan recovery rate is about 41 percent.
Also Read: Boost research on agriculture to increase production: PM Hasina tells scientists
Default stood at Tk 3932 crores, which is 7.68 percent of loans.
As per government policy, agricultural production has been emphasized considering food security.
The BB is also working towards that goal. Banks have been given strict instructions to increase agricultural credit disbursement and it is being constantly monitored.
17 banks facing severe liquidity crunch after violating lending limits
Despite Bangladesh Bank’s initiatives to promote good governance in the banking sector, 17 banks have recently violated their loan disbursement limits, and are now embroiled in a severe liquidity crisis.
Having been over-aggressive in providing loans, they are now unable to recover the loans and attract new deposits as desired, according to a latest internal report of the central bank seen by UNB.
The banks should not sanction any new loans until they restore the ratio of their loans to deposits in accordance with limits set by Bangladesh Bank, which regulates the financial sector.
Also Read: Banks' assets will decrease by 40% if international reporting standards followed: FRC Chairman
Conventional banks can provide loans of up to Tk 87 for every Tk 100 in deposits, while Shariah-based banks can give loans of up to Tk 92 against every Tk 100 in deposits, according to the rules of Bangladesh Bank. This is called Advance Deposit Ratio (ADR) or loan-deposit ratio limit in banking terms.
According to the central bank report covering January 1-26 of this year, 17 banks violated the limits set for them on lending order due to lack of discipline. As a result, the concerned banks have been plunged into an extreme liquidity crisis, making it difficult for them to sanction new loans. Some of them are even unable to pay depositors in some cases.
Experts fear that the existing situation has created additional risks for depositors. According to them, irregularities, corruption and ‘ghost loans’ - loans to firms that turn out to be non-existent -are behind the collapse of the banking system’s loan disbursement process.
Also Read: Prime Bank receives $50m from IFC to support trade, forex liquidity needs in Bangladesh
“In the banking sector, there have been allegations of giving large amounts of ghost loans in recent times. If this continues, the sector will be at risk,” said Dr ABM Mirza Azizul Islam, economist and adviser on finance to the last caretaker government.
Mirza Azizul told UNB, "Lending beyond the limit against deposits disrupts the credit system."
Besides, the debt collection situation of the banks is not satisfactory now. In such a situation, if the non-performing loans increase further with additional loans, then there is a danger for the bank and its depositors will suffer, he added.
He suggested the intervention of the central bank in these banks immediately.
Also Read: BB signs deal with 32 banks to accelerate disbursement of green fund
According to the Bangladesh Bank report, the ADR of National Bank Ltd stood at 98.23 while that of AB Bank was 96.64 in its conventional stream and 103.45 in its Shariah stream.
State-owned Basic Bank’s ADR stood at 91.17, One Bank’s was 89, and multinational National Bank of Pakistan’s was 87.52. Widespread irregularities and corruption have already been reported in these banks.
Apart from this, Community Bank's ADR was 88.28, NRB Bank’s at 88.05 and IFIC Bank's ADR was 87.48, the report states.
Shariah-based Exim Bank's ADR stood at 100.28, Standard Bank's at 96.28, Premier Bank's Islamic Window 155.09 and Bangladesh Commerce Bank's Islamic Window's ADR was 133.26.
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Apart from this, the ADRs of five other Shariah-based banks ranged between 93.01 to 104.54.
A managing director (MD) of a private bank told UNB that the lending limit has undoubtedly been set by Bangladesh Bank based on adequate research and global best practices. No bank should have to cross the limit.
“These violations are creating risk in the banking sector. Depositors in particular will be at greater risk. Already some banks and non-bank financial institutions are not able to return money to depositors,” he said, maintaining anonymity.
The central bank has also extended the period of ADR adjustment five times to allow the banks to bring their lending practices in line with the limits.
Read More: BB disburses Tk 4000 crore as liquidity support to 5 Islami banks
However, many banks could not coordinate this. In such a situation, Bangladesh Bank even increased the required ADR to improve the overall liquidity situation of the banking sector to maintain the pace in credit flow to the private sector.
The executive director and spokesperson of Bangladesh Bank, Md Mezbaul Haque, told UNB that although some banks may at times find themselves in violation of the ADR set for them, the central bank would under normal circumstances give them time to get themselves back within the limit.
“But if they stay outside the limit for long, then they must be warned and action would be taken accordingly,” Mezbaul said.
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Banking diploma needed to become senior officer: Bangladesh Bank
In a circular on Wednesday Bangladesh Bank said that obtaining banking diploma is a must to get promoted to a senior officer post in banks.
“One has to pass both phases of the banking diploma. This rule will be applicable to promote the officers’ level of all scheduled banks operating in the country,” the circular stated.
The banking regulation and policy department of BB issued the circular on Wednesday and sent it to the top executives of banks. This directive will be effective from January 1, 2024. At the same time, the central bank canceled the instructions given on October 13, 2022, in this regard.
The notification said the new requirement won’t be applicable for those not directly involved in banking activities. The exceptions are for doctors, engineers (civil engineering, mechanical engineering, and electrical engineering.
According to the central bank, the syllabus of the Diploma in Banking includes all the theoretical and practical knowledge of banking subjects.
In the first phase, basic and fundamental subjects related to banking are taught, and in the second phase, advanced banking knowledge and skills are tested. The Institute of Bankers, Bangladesh (IBB) offers this two-phase Banking Diploma degree.
The BB circular stated that the importance of the banking sector in the country's overall development is immense.
Such a directive has been issued considering the need to create skilled human resources with basic banking knowledge in this sector and increase the capacity of officials in decision-making.
BB relaxes rule of storing audited financial report for CMSMEs
Bangladesh Bank (BB) has revised the directive to maintain the audited financial reports of loan renewals and file of new loans in accordance with the rules in order to bring order and transparency in CMSMEs loan disbursement.
But considering the global economic situation and to accelerate the economic activities of the country, the time frame for renewal of loans to 'cottage, micro, small and medium sector entrepreneurs (CMSMEs)' and guidelines for preservation of audited financial reports has been extended by two years.
On Monday, the Banking Regulations and Policy Department of BB issued a circular in this regard and sent to the executives of banks for immediate execution.
The circular stated that the companies in the CMSME sector, which are considered as public interest entities according to the Financial Reporting Act, the financial reports audited by the chartered accountants at the time of loan approval and renewal of those companies must be compulsorily stored in the loan file from January 1, 2025.
Read more: BB relaxes ICRRS to facilitate businesses’ loan
In the earlier directive, the retention period for these loans was fixed from January 1, 2023.
The new directions have been emphasised to accelerate the economic activities of the country by taking into account the global economic situation and by increasing the flow of credit to the CMSME sector.
Bangladesh received $1.96 billion in remittances in January amid dollar crisis
The inward remittance flow in January came as good news while Bangladesh Bank (BB) is struggling with LCs liabilities to import essential commodities and industrial raw materials amid volatile foreign exchange supply.
In January, Bangladesh received $1.96 billion in the legal channel, the BB updated data revealed on Wednesday. In December, the remittance was $1.69 billion.
Bangladesh received $12.45 billion inward remittances in seven months (July-January) in the current fiscal year 2022-23.
Read More: Banks to stop charging any fees for handling remittances.
Bank officials said many import payments are being deferred due to the dollar crisis. For this, expatriate income of dollars are being bought at a higher price than the fixed price.
As a result, expatriate income increased. If the price limit of the dollar is removed, the crisis will go away, they said.
The BB spokesperson Mesbaul Haque told UNB that in order to increase remittance inflow, the central bank has increased the exchange rate of US dollars for remittance.
Read more: Bangladesh Bank simplifies receiving remittance
In addition to a 2.5 percent hassle-free incentive for remittance, several banks also provide additional incentives to attract foreign exchange, he said.
Banks will not cut any charge or fee for sending remittances in the legal channel, he said.
Research by Bangladesh Bank found that more than 40 percent of remittance of expatriate income is sent to the country through hundi.
Read More: Bangladesh 9th in remittances with US$ 15.9b: World Bank.
EDF alternative: Tk10,000 crore fund to be operated through 49 banks
Bangladesh Bank (BB) on Monday signed a Participation Agreement with 49 banks to ensure adequate liquidity for the export-oriented sector.
Earlier the central bank formed ‘The Export Facilitation Pre-financing Fund (EFPFA)’ of Tk10,000 crore to assist the export sector amid the slowdown of global economic growth. The entrepreneurs can borrow from this fund for an interim period before getting foreign buyers' payment against the order.
From the newly constituted fund of Tk10,000 crore, exporters will be given loans in local currency. After taking loans in taka, they (exporters) can convert them into foreign currency and open an LC. As a result, it will act as an alternative fund to the export development fund (EDF), where exporters get loans in foreign currency, acting as a drag on the country's forex reserves.
It drew attention after the IMF insisted the EDF of USD $7 billion be counted as encumbered reserves - not as part of the country's liquid foreign exchange reserve.
The executive director and spokesperson of BB Mesbaul Haque told UNB that Governor Abdur Rauf Talukdar had a meeting with the MDs of the banks on Monday. Separate deals were signed with 49 banks in the meeting.
Read more: BB set to announce new monetary policy
As per the deal, banks will be able to borrow from this fund at 4 percent interest rate, he said.
After the meeting, Chairman of Association of Bankers, Bangladesh (ABB) and Managing Director of BRAC Bank Salim RF Hossain said that the banks will benefit through the formation of the fund in local currency.
“We applaud this initiative. We have entered into an agreement with the central bank to avail loans from the Export Facilitation Pre-financing Fund,” he said.
After receiving the export work order from the buyer, entrepreneurs will be given loans from this fund to import the required raw materials for the exporting sector. Loans will be given from this fund at a maximum interest of 4 percent.
In respect of this loan, no fee or commission can be collected in excess of the charge or commission fixed by the central bank.