Summary:

It has been 52 years since a bank in Bangladesh has closed and the assurance is that none will close soon. However, weaker banks that are facing problems may consider mergers and acquisitions (M&A) to strengthen their capital base, as per the Bangladesh Bank. The Governor of Bangladesh Bank, Mr. Abdur Rouf Talukder, stated on Wednesday that this option is currently being considered. 

Content:

The governor of Bangladesh’s central bank recently addressed concerns about a “trust deficit” in the banking sector during a press conference. The inquiry pertained to the lack of good governance in certain banks, and the governor dismissed the assertion, stating that the public does not hold a deficit of trust in the banking industry. The governor underscored the fact that no bank has ever been closed in the 52-year history of Bangladesh, and he assured the public that no bank will be closed in the foreseeable future. He expressed optimism that successful mergers could enhance the banks’ situation. The recently amended Bank Company Act 2023 now authorizes the central bank to initiate forced mergers of any bank if the board of directors and management engage in activities that undermine depositors’ interests.

The governor has recently announced that the banking regulatory authority is planning to introduce a crawling peg corridor to manage foreign exchange risks by preventing unusual fluctuations in the exchange rates. Despite the growing demand from several quarters for free-floating rates, the governor has emphasized that the current macroeconomic context of the country does not permit such flexibility. It is noteworthy that neighboring countries of Bangladesh have adopted market-based models to mitigate similar risks. According to the governor, a narrow band corridor will be implemented under the new matrix, with the real effective exchange rate positioned in the middle. The corridor will have an upper ceiling and floor rate, and the exchange rate will fluctuate within this range.

The governor has mentioned that unconventional commercial banks are facing a structural issue that is causing a significant impact on their current account deficit in Islamic banks. According to a media statement, conventional banks possess a sufficient number of instruments such as treasury bills and bonds to maintain the regulatory requirement. Conversely, Shariah-based banks do not have enough instruments at their disposal, which presents a challenge. The statement further highlights that Islamic banks only hold Sukuk bonds, which account for a mere 2.50% of their total requirements, making it difficult to meet their obligations. The statement concludes by stating that by Mr. Talukder efforts are underway to address this issue. 

Picture and Article Source: The Dhaka Tribune