IMF Questions Bangladesh's Approach to Troubled Banks: Why Keep Paying Salaries and Bonuses?
The International Monetary Fund (IMF) has raised concerns over Bangladesh's handling of a critical issue in its banking sector. The fund questions why nearly two dozen banks, facing severe capital shortfalls, continue to pay salaries and bonuses to their staff, despite mounting losses and rising non-performing loans (NPLs).
This matter came to light during a recent meeting in Dhaka, where an IMF delegation and Bangladesh Bank officials discussed the banks' asset classification, credit risk, and regulatory measures. The IMF representatives were particularly intrigued by the lack of decisive action against these struggling banks.
The IMF's Perspective:
- The fund's experts inquired about the absence of liquidation for banks with high NPLs and significant capital deficits, suggesting that such banks should be promptly addressed.
- They expressed doubt about the effectiveness of prolonged recovery plans, emphasizing the need for a clear path towards either restructuring or liquidation.
Bangladesh's Response:
- Bangladesh Bank officials explained that bank liquidation is a rare occurrence in the country. Instead, they have initiated mergers and capital restoration plans to help banks recover gradually.
- Ahsan H Mansur, the Governor of Bangladesh Bank, stated, 'We are in a completely free-floating position, with no market intervention.'
The Capital Shortfall Crisis:
- By the end of June 2025, the combined capital shortfall in Bangladesh's banking sector exceeded Tk1.55 lakh crore, a sharp increase from the previous quarter. This situation has affected 24 out of 61 scheduled banks, including state-owned, specialized, and private commercial banks.
Loan Defaults and Market Interventions:
- The central bank officials disputed the idea of new loan defaults, attributing the current wave to loans issued during the previous government's tenure, which were already considered risky.
- The IMF, however, questioned the free-floating nature of the exchange market, suggesting that the central bank's continued purchase of US dollars might indicate some level of intervention.
Loan Rescheduling and Monitoring:
- The IMF also highlighted the absence of a cooling period for rescheduled loans, suggesting that a monitoring period should be introduced to assess borrowers' repayment behavior.
- Bangladesh Bank officials acknowledged this point but defended their lending policies, claiming they are stricter than those in many other countries, reflecting the unique economic realities of Bangladesh.
The discussion between the IMF and Bangladesh Bank officials has sparked a debate on the best approach to managing troubled banks and the exchange market. The IMF's concerns and suggestions have opened up a conversation that could significantly impact Bangladesh's financial landscape.
