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The new bank born out of the merger of five severely liquidity-starved unconventional banks will be launched this week, Bangladesh Bank (BB) Governor Dr Ahsan H. Mansur informed Thursday, on an upbeat note about its strong start-up capital base.
The process of launching the much-talked-about Sammilito Islami Bank begins today, incidentally amid a crisis stemming from bad-loan burdens on banks.
Speaking as the chief guest at the 4th Bangladesh Economic Conference 2025, he said five struggling Islamic banks are being merged into the country's biggest commercial bank under the bank resolution ordinance.
"This newborn bank will be launched next week (the week begins today)," he told the audience at the conference hosted by Bangla business daily Banik Barta at a city hotel on Saturday.
It is known that meeting of the reconstituted 7-member board is set to be held today (Sunday) where the licensing formalities could be completed.
The central bank governor said the paid-up capital of the state-run unconventional bank will be Tk 350 billion-- the highest in the banking history in Bangladesh. Currently, the bank having the highest paid-up capital is Tk 150 billion.
"We want to make a strong Islamic bank and the government will inject (equity investment) Tk 200 billion," he says.
Terming mammoth NPL (non-performing loan) buildups a serious problem the banking industry faces, the BB governor said he thought the sector's NPL ratio could be around 25 per cent two years ago when the then central bank regime was claiming 8.0 per cent.
"Now we see it is 35 per cent (35.73 per cent to be exact). It is more than one-third of the total disbursed loans. Banks are being run with only two-thirds of the assets," he told the conference moderated by Banik Barta editor Dewan Hanif Mahmud.
Mr. Mansur, who took the helm of the central bank after the changeover in state power following last year's mass uprising, makes a stark prediction that the banking sector will need 5 to 10 years to recover from the burden of mounting bad loans.
Regarding the high policy rate, he says the central bank raised the policy rate to 10 per cent when the inflation rate was 12.50 per cent and the policy rate was not high at the time.
He mentions that the differential between policy rate and inflation rate in most of the developed and developing economies are ranging from 2.50 per cent to 3.0 per cent.
"Now the inflation rate here is around 8.20 per cent in October. Once it comes down to 7.0 per cent, we'll consider a cut in the policy or repo rate," he told the meet.
The governor says the inflation rate was supposed to be brought down 7.0 per cent but it did not happen due to some policy failures. They estimated that the prices of rice had gone up by 18 per cent during August-September period even amid falling global price and it enhanced the inflationary pressure by 1.40-percentage points.
"Unfortunately, we stopped rice import when the price of rice on the local market was rising. This is not the right policy. If the country really contains the inflation, the commodity market needs to align with the international trade," he suggests.
Later, the government opened rice import but it was a belated decision.
"The policy needs to be changed and bureaucratic intervention in many cases has become counterproductive. That was the case," he quips.
Talking about the plummeting private credit growth, the BB governor said the deposit growth dropped to 6.0 per cent. Now it has risen to 10 per cent.
He notes that the loan-able funds in the banking sector were less than Tk 20 trillion. Taking 6.0-percent deposit growth into consideration, it was Tk 1.20 trillion and the government alone borrowed Tk 1.0 trillion to meet budgetary shortfalls.
"What is left? As long as the government cannot reduce its borrowing from the banking sector, the tension on the money market will not ease," he predicts.
Director-General of Bangladesh Institute of Development Studies (BIDS) Professor Dr Enamul Haque, former FBCCI president AK Azad, Chairman of GPH Group Mohammad Jahangir Alam and managing director and chief executive officer of City Bank Mahror Arefin, among others, also spoke at the inaugural session of the conference.
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