The country's economy is under pressure due to a rise in inflation and a decline in export amid geopolitical tension and supply chain disruption, said the Bangladesh Bank in a report unveiled on Sunday.
The central bank published its "Financial Stability Assessment Report" for July-September of 2022 where its governor Abdur Rouf Talukder and deputy governor Abu Farah Md Nasser were present.
Rouf said that the emergence of the Russia-Ukraine war in early 2022 as well as associated geopolitical tension had created a cloudy environment in the global macro financial landscape.
It led to a severe stress on the external sector of emerging markets and developing economies, including Bangladesh, largely due to a rise in energy price and supply chain disruptions.
During the quarter review, average inflation registered a rise with minor decline in foreign exchange reserves and depreciation of local currency against the US dollar, he said.
The governor also said that the BB had taken several initiatives to alleviate the external sector stress, which would not be enough without the highest level of cooperation of banks.
Besides, due diligence needs to be ensured in foreign trade transactions so that proper values get reflected in export and import LCs, Rouf said.
Banks and financial institutions need to remain vigilant in ensuring asset quality as well as maintaining adequate capital and liquidity to address any adverse shock, he said.
Deputy governor Abu Farah Md Nasser said that the domestic economy might face some pressures due to a rise in inflation and a decline in exports.
Although the trade deficit narrowed in the July-September 2022 quarter, the decrease in inward remittance had an impact on foreign exchange reserves, he added.
The BB has resorted to a number of supportive measures to alleviate these, he said.
To maintain the momentum in overall economic activities, enhance stability of the financial sector and ensure proper management of classified loans, the Bangladesh Bank has taken congenial measures on rescheduling of loans and advances, he said.
Among the broad risk factors, credit risk remained the major risk factor for the banking sector in terms of its impact on the banks' capital adequacy, according to the report.
Results of the test depict that the increase in non-performing loans by 3% is likely to have the highest impact on the banking sectors' resilience in terms of capital adequacy, which is followed by default of top three large borrowers, it said.
