Entrepreneurial directors of private banks have expressed concern about the new advance provisioning policy to be introduced in the banking sector of Bangladesh. At the same time, they have demanded that the existing restrictions on giving bonuses to officials of banks with capital or provision deficits be relaxed.
To discuss this issue, a delegation of the Bangladesh Association of Banks (BAB), an organization of private bank chairmen, held its first formal meeting with Bangladesh Bank Governor Md Mostakur Rahman on Monday (March 9).
In the meeting, the governor emphasized on establishing discipline in the banking sector, strengthening supervision and creating employment.
An official present at the meeting said that the BAB requested the central bank to relax the existing restrictions on giving bonuses to officials in the context of capital and provision deficits of banks.
Their argument is that if banks in crisis are to turn around, it is important to maintain the enthusiasm and morale of officials. If bonuses and other benefits are stopped, it can have a negative impact on bank management.
Bangladesh Bank has taken the initiative to introduce the 'Expected Credit Loss' or ECL system to bring the quality of credit risk management and financial reporting in the country's banking sector in line with international standards. This system will be introduced according to the International Financial Reporting Standard IFRS 9.
Under this policy, banks will have to reserve provisions by considering possible losses before any loan goes bad. The central bank said that this new system will be effective from 2028.
However, BAB said that many banks are currently in a capital and provision crisis. In the meantime, if advance provisioning is made mandatory again, additional financial pressure may be created on the banks.
Entrepreneurial directors believe that it will be difficult for many banks to implement it, especially in the case of loans that have been rescheduled in the long term.
A chairman present at the meeting said that a written proposal has already been submitted to the central bank, in which international examples have been cited and a request has been made to consider the country's reality in implementing the policy.
In the meeting, BAB leaders also expressed concern about possible changes in the Bank Company Act regarding the appointment of independent directors during the interim government.
According to them, active participation of entrepreneurs is important in the effective management of private banks. Therefore, it is necessary to maintain a balance between the ownership and management structure of the bank in appointing independent directors.
After the meeting, BAB Chairman Abdul Hye Sarkar told reporters that if there is regular discussion and coordination with the central bank, it will be possible to take policy decisions more realistically.
"There was also a discussion on protecting weak banks. The governor has shown a positive attitude towards the position of private banks."
Regarding the advance provisioning policy according to IFRS-9, he said that it is an internationally common system and is nothing new. However, it is necessary to review how it will be implemented considering the structure and capacity of the banking sector in Bangladesh.
The relevant parties are now focusing on taking into account the capacity and real situation of the banks in implementing the new policy that the central bank is adopting to strengthen risk management in the banking sector and improve the quality of financial reporting.
Sarkar believes that there will be no major disruption in the remittance flow in the country if expatriate Bangladeshis can work normally despite the ongoing war situation in the Middle East.
The BAB chairman said that if expatriate workers in the Middle East can continue to work normally, then the remittance flow will continue. However, if their employment is disrupted due to the war situation, then the remittance flow may also be negatively affected.
“It is difficult to say anything for sure at the moment. It will depend on how long the war lasts and how stable the situation remains.”