Legal amendments ready for BB autonomy: Governor

Necessary legal amendments are soon for central bank's autonomy and also for downsizing commercial banks' directorships under sweeping reforms that also envisage nationalisation of incurably ailing banks.

Bangladesh Bank Governor Dr Ahsan H. Mansur unveils this plan of action in an exclusive interview with The Financial Express (FE), dwelling at length on other far-reaching recast of the country's banking sector.

He said the central bank will start the process of nationalising six ailing commercial banks from July-August next under provisions of the recently introduced Bank Resolution Ordinance.

As part of the revival of the severely liquidity-crisis-ridden commercial lenders, the BB has already done asset-quality review and preview of different scenarios regarding the matching of the banks before official launch of the process of mergers and acquisitions of the problem banks.

Riding on direct cash-support by the banking regulator under the current interim government, the BB governor said, Islami Bank Bangladesh and United Commercial Bank have started rebounding well despite a significant portion of their balance sheets having been emptied through money laundering.

"I must give credit to the current management and their clients who did not lose their trust on the banks and returns. These two banks have come out of the problem and starts operating without any further support from the central bank after the initial feeding," he adds.

But liquidity crisis in most of the remaining banks is severe. There are banks where 87 per cent of the assets have been taken away during the Sheikh Hasina regime.

"How it is possible to do 100-percent servicing with 13-percent assets. No calculation will match it," Mr. Mansur, who took charge of the central bank leadership soon after the July-August mass uprising that toppled the Hasina government in 2024, says about the arithmetic of the banking mismatches.

To solve the problem and ensure full protection of the depositors in these banks, he noted, the regulator will come to intervene and nationalise them under the recently introduced Bank Resolution Ordinance which gives the central bank enough authority to place the incurable banks under state ownership as an ultimate cure.

Responding to a question, the central bank governor said they would start to apply the ordinance from July-August next on the green signal from the reigning interim government.

"We'll move forward for merger-acquisition or recapitalisation. But there is nothing to be worried. The banks will be revitalised through nationalisation to give further relief to the depositors."

He mentions that the Shariah-based banks, apart from Islami Bank Bangladesh, will be merged to form two large Islamic banks as part of sweeping reforms in the financial sector and they will bring potential investors as well.

When his attention was drawn to the unfruitful merger and acquisition moves taken by immediate-past governor Abdur Rouf Talukder under the Awami League regime, the governor said it was a miss-managed effort. There was no legal basis and power of the regulator to do so.

During that time, he recounts, the central bank used to fix who will merge with whom without doing proper asset review. "But we have completed asset-quality review of the banks. We know the value of the assets. We also make various scenario developments of the matching."

On the other hand, they have hired leading global consulting firms having enough experience of mergers and acquisitions and they will guide the regulator in structured way to do the critical tasks.

At the same time, the BB governor says, they are going to bring about major changes in the existing Bank Company Act as part of the ongoing reforms to ensure good governance in the financial sector.

The number of directors will be reduced. Family directorship in the banks will be curtailed to two in place of five and their tenure will be three years in each of two terms.

Now a family director can stay on the bank board twelve years in a row, according to the latest Bank Company Act amended in 2023.

"And 50 per cent of the directors must be independent and independent directors will be chosen from the BB's panel. You cannot appoint anyone you want," he further explains the recast plans.

However, if someone wants to nominate somebody from outside the panel and the nominated person is qualified and respectable, the central bank will approve it.

They will place the draft of the proposed amendment to the Bank Company Act to the chief adviser in July for securing the go-ahead.

Regarding independent functioning of the banking-regulatory body, Mr Mansur says they want to ensure autonomy of the central bank. As part of it, they will go for necessary revision of the Bangladesh Bank Order 1972.

He made it clear that every central bank of the world faces political pressure. Because of the fact, each developed country has put enough safeguards in place to overcome such external pressure.

"I can boldly say there is no external pressure on me. But those who will come later may face external pressure once the political government takes charge. Keeping this in mind, we want to bring reforms in the BB Order so that we can prevent the political pressure as an institution."

"We want to incorporate international best practices into the law and the draft is almost ready. It will also be discussed with the chief adviser in July", he said

Regarding the challenges of leaving the exchange rate to the market, the BB boss said many people feared the exchange rate would reach Tk 150 per dollar in the free-float regime but it didn't.

The central bank recently moved towards the market-centric regime and the exchange rate remained stable and hopefully it would remain so.

If anyone wants to destabilise the foreign-exchange market, the governor warns, they will be dealt with strictly. "There is enough supply of forex in the market thanks to a record inflow of remittance and steady export growth. Let the market go by its own force."

About the role of aggregators, he says they have to take the risk of leaving the exchange rate to be determined by the market. "The aggregators can quote any price they want but I won't buy. How many days they can hold dollars…maximum five working days. Because they will need taka to buy dollars, and for this, they will have to sell dollars."

There is no such vulnerability in the economy that will be able to pay external payments for seven days, even for a month. "Don't hope for gaining big margin like Tk 5 and Tk 10 a dollar. That will not happen," he tells possible dollar hoarders.

About central bank intervention in combating possible exchange-rate distortion, the governor says they kept an intervention fund of $500 million under the IMF lending programme and they don't want to use a single penny from the fund.

"The fund is like a sword and shield for us. I am ready to fight, but I don't want any war. I want peace. Don't force me to do so," he alerts.

Regarding inflation control, the governor felt that exchange-rate stabilisation is very vital in terms of cooling down inflationary pressure. The inflation keeps falling in recent months although it has not been brought down to the target yet.

"Our target is to bring down within 8.0 per cent by June next and below 7.0 per cent by August. I think we are in right direction," the BB governor maintains.

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