To bail out fragile banks experiencing liquidity issues, at least Tk200,000 crore needs to be printed, which will only increase inflation further and hike the US dollar rate.
Instead, Bangladesh Bank (BB) will act as guarantor by securing loan support from the interbank market to give clients of these banks temporary relief, said Bangladesh Bank Governor Ahsan H Mansur on Wednesday.
Speaking at a press conference following Bangladesh Bank's meeting with representatives of the Association of Bankers, Bangladesh (ABB) Ltd,Dr Mansur further said: “Printing this huge amount of money will destroy our macroeconomic stability. Our exchange rate may exceed Tk150, and the inflation rate may exceed 25%. Now, we want to achieve our target inflation and keep the exchange rate at Tk120.”
“For now, we will provide some liquidity support in limited capacity. That will be done through interbank loans. No one will give loans to those fragile banks, so Bangladesh Bank will now work as a guarantor of these loans, so that other banks can help them maintain liquidity by lending their money at market rate. They can provide temporary relief to the customers of these banks, even if not completely.”
The governor reassured depositors, urging them not to withdraw their funds en masse and allow time for the banks to recover.
“Large sums of money have been laundered and embezzled from the banking sector at various times. We initially thought that this was primarily limited to 7-8 banks. These banks are now in a liquidity crisis. Arrangements are being made to solve this liquidity crisis so that relief can be given to customers, even if in a limited form.”
He reiterated his stance that weak and troubled banks would not be rescued by printing money or through sudden closures, stressing that these approaches would not provide a sustainable solution.
After the meeting with ABB officials, its chairman Selim RF Hussain, also MD and CEO of Brac Bank, told the media: “The Bangladesh Bank will establish three distinct task forces to address non-performing loan management, the Strengthening Project, and legal framework.”
The time required for the formation of these task forces has not been decided yet, he said, adding that experts from domestic and international institutions will be included in these task forces.
"The task forces will be of international standard. Experts from the World Bank and the International Monetary Fund may be included," he further added.
Selim also informed that the central bank will increase its policy rate to 10% in the next 1-2 months to tame inflation.
