The IMF's Burning Question: Why Are Loss-Making Banks Still Paying Out?
In a recent meeting in Dhaka, the International Monetary Fund (IMF) delegation raised eyebrows and sparked a heated debate about Bangladesh's banking sector. The core issue? Why are banks, struggling with severe capital shortfalls and mounting losses, still paying salaries and bonuses to their staff?
But here's where it gets controversial...
During the meeting, chaired by Deputy Governor Zakir Hossain Chowdhury, the IMF representatives grilled Bangladesh Bank officials on their handling of financially distressed banks. With high non-performing loans (NPLs) and significant capital deficits, the IMF questioned why these banks weren't being liquidated.
Bangladesh Bank officials defended their approach, stating that liquidation is rare in Bangladesh. Instead, they've opted for a merger initiative for five banks and capital restoration plans for others. Ahsan H Mansur, Governor of Bangladesh Bank, emphasized their free-floating market position, stating, "There is no intervention in the market."
However, the IMF wasn't convinced. They argued that prolonged recovery plans aren't sustainable and urged Bangladesh to consider restructuring or liquidation.
And this is the part most people miss...
According to Bangladesh Bank data, the capital shortfall in the banking sector has skyrocketed to over Tk1.55 lakh crore by June 2025, a significant jump from the previous quarter. Out of 61 scheduled banks, a staggering 24 failed to meet the mandatory minimum capital requirement, including state-owned and private commercial banks.
Central bank officials attributed the defaults to loans issued during the previous government's tenure, claiming no newly issued loans had defaulted in the past year.
In a separate meeting, the IMF delegation discussed the foreign exchange market with Governor Mansur. The IMF team asserted that Bangladesh's exchange rate regime didn't reflect a fully free-floating market, a claim Mansur rejected. He maintained their position of non-intervention.
But the IMF delegation pressed further, questioning the central bank's purchase of US dollars if the market was truly free-floating. Mansur explained it as a common practice for export- and remittance-dependent countries, even citing Japan as an example. He added that the central bank's purchases aimed to stabilize the market with excess dollars, given the slowed import demand and sufficient foreign currency holdings by banks.
The IMF also raised concerns about Bangladesh's loan rescheduling policy, suggesting a monitoring period to assess borrowers' repayment behavior before classifying restructured loans as performing. Bangladesh Bank officials acknowledged the current circular's lack of such provisions but defended their lending policies as stricter than many other nations, reflecting Bangladesh's economic realities.
So, what's your take on this? Is the IMF's concern valid, or is Bangladesh's approach justified? Feel free to share your thoughts and insights in the comments below!
