The visiting representatives from the International Monetary Fund (IMF) have enquired about the measures taken by the Bangladesh Bank (BB) to control inflation and stabilize liquidity situation in banks.
They also wanted to know the possible steps taken against willful loan defaulters, sources at the central bank said.
The IMF team, who is now in Bangladesh to assess the progress of the target set by the global lender in a lending package for restoring macroeconomic stability deemed under stress disbursing third tranches of its $4.7 billion worth of approved loan, met various departments of the central bank on Monday.
Simultaneously, the Bretton Woods Institution suggested formulating a climate risk testing framework for the financial sector to assess vulnerability-absorbing capacities of the banks and other financial institutions in the context of global warming that is severely affecting countries like Bangladesh.
Officials present at the meetings said members of the multilateral lending agency wanted to know the possible reasons for not being able to curb inflation despite taking a contractionary monetary stance.
The central bankers explained to the IMF delegation that controlling inflation through only interest-rate mechanisms is tougher here because of involvement of other non-monetary factors on the supply side.
The IMF delegates also wanted to know the liquidity status in banks amid the persisting contractionary monetary regime and the logic behind providing enhanced cash-support to the banks by the Bangladesh Bank.
Bangladesh Bank spokesperson Md Mezbaul Haque told reporters that the IMF delegation recommended making a climate risk testing framework for the financial sector.
They also talked about the forex reserve, possible crawling peg activities and inflation. The issue of non-performing loans (NPLs) was also discussed in the meeting, he said.
The mission wanted to know the reason behind the banking sector's high amount of non-performing loans and ways to reduce it.
The central bank recently introduced a roadmap to reduce bad loans in the banking sector as per the IMF's prescription.
Bangladesh Bank aims to reduce the bad loans to less than 8% of all outstanding loans by June 30, 2026.
The state banks' defaulted loans will be less than 10% and that of private banks will be under 5%, as per its roadmap.
Under the new rules, banks will be able to write off loans that have been in the "bad and loss" category for two years by keeping 100% provisioning against those.
Previously, banks had to wait for three years before they could write off the loans.