[🇧🇩] Banking System in Bangladesh

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ACC seeks responsibilities to investigate reserve heist case

Hackers stole USD 81 million from the Bangladesh Bank reserve during the tenure of the Bangladesh Awami League government. The Criminal Investigation Department (CID) of the police could not complete their investigation in the lawsuit that was filed with Motijheel police station in the city...

en.prothomalo.com

ACC seeks responsibilities to investigate reserve heist case
Nurul Amin
Dhaka
Published: 22 Jan 2025, 21: 09

Bangladesh Bank Collected

Hackers stole USD 81 million from the Bangladesh Bank reserve during the tenure of the Bangladesh Awami League government.

The Criminal Investigation Department (CID) of the police could not complete their investigation in the lawsuit that was filed with Motijheel police station in the city even after nine years.

Now the Anti-Corruption Commission (ACC) wants to investigate the case.

CID has already found involvement of 14 people including former central bank governor Atiur Rahman in the reserve heist incident. The immigration police have already placed an embargo on their travelling abroad.

Wishing not to be named, an ACC official told Prothom Alo that the crime of reserve heist incident falls within the jurisdiction of ACC. The former government of Sheikh Hasina filed a fabricated case with the intention to conceal the incident and gave CID charge to investigate that.

The case was filed with Motijheel police station after 39 days of the incident under three sections including theft.

The official further said the heist mainly took place through hacking but the lawsuit was filed under theft sections. Though there are sections related to hacking, the case was filed in such a way so that the accused could get released even after submitting the charge sheet.

ACC sources said a letter was sent on 31 December 2024 to the CID seeking responsibilities of the investigation. CID received the letter on 2 January but has not yet made any reply.

Of the people barred from travelling abroad, 10 could be identified. They are - former governor of Bangladesh Bank Atiur Rahman, former director of Summit Alliance Port and Institute of Bankers Bangladesh Anisuddin Ahmed Khan lias Anis A Khan, former maintenance engineer of Bangladesh Bank Dipankar Kumar Chowdhury, former deputy general manager SM Rezaul Karim, former executive director Suvongkor Saha, plaintiff Zubayer Bin Huda, former deputy director (SWIFT operator) GM Abdullah Salehin, assistant director Sheikh Riaz Uddin, officer Eklas Uddin and incumbent executive director Mezbaul Haque.

Sources involved with the investigation said Atiur Rahman has left the country even before the court pronounced the order barring him from travelling abroad but the others are staying in the country.

The ACC letter, sent to the CID seeking the case dockets, evidence and other records and documents, requested to handover the case to the anti-graft body.

It said as per section 21 of the CrPC, this investigation falls under the jurisdiction of the ACC as all the people, including the former governor of Bangladesh Bank, involved with the incident are, according to the corruption prevention act and bank company act, public servants.
No CID official, involved with the investigation, however, agreed to comment on the case.

Asked about the letter, ACC director general Akhtar Hossain told Prothom Alo that he did not know this. He could inform this later after inquiring.

On the night of 4 February, 2016, 81 million US dollars were stolen from the reserves of Bangladesh Bank. The criminals resorted to fraud using the SWIFT payment system and withdrew the huge amount of money from the reserves of Bangladesh Bank kept at the Federal Reserve Bank of New York in the United States.

This money went to four accounts at the Rizal Bank branch in Makati City, Philippines, and the money was quickly withdrawn from there. Of the amount, 34 per cent of the money has been recovered. The rest is still deposited in a bank in the Philippines. Bangladesh Bank has filed a case against the Philippine bank in a US court. If the case is won, the rest of the money will be recovered.

Investigation sources said hackers were able to withdraw money from reserve due to negligence in security of SWIFT system. Bangladesh Bank's forex reserve SWIFT (Society for Worldwide Inter Bank Financial Telecommunication) server is a sensitive system. Despite that, then governor approved the connection of Real Time Grace Settlement (RTGS) through the SWIFT and ensured its implementation. The investigators identified this as a criminal move. RTGS is a specialised fund transfer system, through which funds can be transferred from one bank to another instantly.

The investigation also revealed that the then deputy governor-4 Abdul Kashem was against providing RTGS service through SWIFT. As a result, Atiur Rahman himself signed the file for providing RTGS service. Some officials of Bangladesh Bank connived with hackers for pecuniary benefits, though they didn’t get their share after the matter came to light.

Asked, former inspector general of police (IGP) Nurul Huda told Prothom Alo that attorney general should be consulted before transferring the case. The attorney general, who is the top legal officer of the state, can make the right decision considering the fact that if the investigation was done correctly.​

 

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BANKING SECTOR: Legal complexities worsen default loan crisis

The legal framework for handling non-performing loans (NPLs) in Bangladesh has become dysfunctional, allowing wilful defaulters to exploit loopholes and delay repayment, according to a report by the task force on economic reforms...

www.newagebd.net

BANKING SECTOR: Legal complexities worsen default loan crisis
Staff Correspondent 01 February, 2025, 22:55

Representational image. | New Age file photo

The legal framework for handling non-performing loans (NPLs) in Bangladesh has become dysfunctional, allowing wilful defaulters to exploit loopholes and delay repayment, according to a report by the task force on economic reforms.

The report, titled ‘Task Force Report on Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development’, was presented by planning adviser Wahiduddin Mahmud to chief adviser Professor Muhammad Yunus on 30 January.

Distressed assets in Bangladesh’s banking sector surpassed Tk 6.75 lakh crore at the end of FY24, an amount equivalent to the cost of 13.5 Dhaka Metro systems or 22.5 Padma Bridges, according to a draft White Paper released in December.

Distressed assets include non-performing loan, rescheduled, restructured, written-off, and litigated loans. The review of the White Paper puts the banking sector on top of the most corruption-ravaged sectors.

With Tk 1,78,277 crore stuck in 72,543 cases as of February 2024, the backlog of cases under the Money Loan Court Act and the Bankruptcy Act has severely hindered efforts to resolve bad loans, according to the task force report.

The Money Loan Court Act, 2003 mandates post-litigation mediation rather than pre-litigation arbitration, making settlements difficult once disputes escalate, it said.

According to the task force report, defaulters have misused this provision to prolong cases, while the requirement for banks to sell collateral before filing lawsuits further complicates debt recovery.

Defaulters usually obtain stay orders from the High Court and delay the course of justice.

The low judge–population ratio and insufficient courtroom facilities have created a bottleneck in resolving NPL-related cases, the report said.

The Bankruptcy Act, 1997, which only applies to individuals and not businesses, leaves major corporate defaulters beyond legal reach.

Over the years, legal reforms have favoured politically connected bank directors rather than strengthening governance.

Amendments to the Bank Company Act in 2018 allowed more family members to serve on bank boards, while a 2023 revision extended director tenures to 12 years.

A major regulatory change in April 2024, through BRPD Circular 07, further weakened accountability by revoking the group default clause, allowing subsidiaries of defaulting business groups to secure fresh loans, the task force report said.

The government’s reluctance to take punitive action — such as freezing bank accounts, liquidating assets, or blocking financial transactions — has emboldened defaulters, worsening the banking crisis, it said.

Access to timely and reliable financial data has also been restricted, creating a lack of transparency, it said.

Since 2018, critical bank-specific data on capital adequacy, asset quality, and liquidity have not been publicly released, while many weak banks have failed to disclose mandatory financial statements under BASEL III standards, the report said.

Arbitrary loan classification changes have further distorted the real NPL situation, often contradicting IMF guidelines, it added.

The crisis, long concealed under regulatory opacity and political influence, came into sharper focus after the mass protests of July 2024, it claimed.

Bangladesh Bank data showed that the NPLs shot up by more than Tk 1 lakh crore to Tk 2,84,977 crore in September from Tk 1,82,295 crore at the end of March.

About 17 per cent of total bank loans — amounting to Tk 16.82 lakh crore — are classified as non-performing, the highest ratio in South Asia.

The defaulted loan figure was Tk 2,11,391 crore at the end of June, Tk 1,45,633 crore in December 2023 and Tk 1,55,398 crore crore in September 2023.

The figure has ballooned by Tk 2,62,737 crore over the past 15 years since 2009, when the Awami League assumed power.

At that time, the total defaulted loan stood at Tk 22,240 crore.​

 

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FID undermines Bangladesh Bank autonomy

Economists in a latest task force report have blamed poor leadership and the Financial Institutions Division for the erosion of the Bangladesh Bank’s autonomy.

www.newagebd.net

FID undermines Bangladesh Bank autonomy
Mostafizur Rahman 02 February, 2025, 00:22

Economists in a latest task force report have blamed poor leadership and the Financial Institutions Division for the erosion of the Bangladesh Bank’s autonomy.

They observe that poor leadership at the central bank over the past 10–15 years, coupled with the formation the Financial Institutions Division under of the Ministry of Finance in 2010 by the now deposed Awami League regime, has significantly diminished the central bank’s independence.

The observation was revealed in a document titled ‘Task force report on re-strategising the economy and mobilising resources for equitable and sustainable development’ presented by planning adviser Wahiduddin Mahmud to the chief adviser, Professor Muhammad Yunus on January 30.

The report was prepared by 11 renowned economists and other experts.

The establishment of the FID in 2010 introduced dual regulation of the banking sector by Bangladesh Bank and the FID, the report said, observing that the presence of dual regulators exacerbated governance failures instead of strengthening oversight mechanisms.

The move to establish the FID contradicted the Bangladesh Bank (Amendment) Act, 2003, which granted the central bank autonomy over its operations, monetary policy formulation and implementation, the report stated.

The FID’s mandate itself reflects how it undermines Bangladesh Bank’s sovereignty, according to the report.

It holds the authority of ‘administration and interpretation of the Bangladesh Bank Order, 1972, and the orders relating to specialised banks as well as matters concerning the state-owned banks, insurance, and financial institutions.’

By assuming this role, the ministry of finance effectively established its control over the central bank’s governance, the report noted.

Following the FID’s establishment, banking sector governance significantly deteriorated.

Bank licences were granted based on political considerations, non-performing loans surged, and regulatory oversight weakened.

In 2013, the government approved the establishment of nine private commercial banks despite widespread concerns over their economic justification.

Referring to a study, the task force report mentions that 95 per cent of banking officials believed these banks were unnecessary.

The Bank Company (Amendment) Act, 2013 mandates that new commercial banks should be licensed based on economic necessity and prevailing financial conditions.

But in Bangladesh, political influence has outweighed economic rationale in bank licensing, the report says.

Over time, bank licences have increasingly become tools for embezzling public funds, the report highlights.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, told New Age that there was a conflict of interest between the roles of the Financial Institutions Division and Bangladesh Bank, adding that their responsibilities should essentially be separated.

He suggested that the central bank should function as a constitutional body, accountable to the parliamentary standing committee.

He emphasised that the focus should not be just on empowering the central bank, but also on who was leading it.

Mahbubur underscores institutional reforms to establish a proper structure for the central bank.

The right person must be appointed to lead Bangladesh Bank, with transparent mechanisms in place, including clear eligibility criteria and job descriptions for the governor and deputy governors, to ensure accountability, he stressed.

M Masrur Reaz, chairman of Policy Exchange Bangladesh, states that while the central bank has never enjoyed full autonomy, its independence was completely eroded during the 15-year rule of the Awami League-led government.

He criticised the Awami regime for undermining Bangladesh Bank’s independence, citing undue influence from the head of government and the finance minister.

Reaz emphasised the need for the government to evaluate and strengthen institutional mechanisms to minimise political interference and the influence of powerful business groups.

He also stressed that the accountability of the central bank governor should be ensured through oversight by a more independent body, such as a parliamentary standing committee, to safeguard the institution’s autonomy and integrity.

The taskforce on economic reforms suggests strengthening loan sanctioning processes, depoliticising bank boards, upholding Bangladesh Bank’s independence and enacting legal reforms to address deep-rooted governance issues, enhancing transparency, and ensuring financial stability.

‘In order to remove dual regulation and stop political influence the MoF’s FID should be shut down. The functions of the FID can be performed by the Bangladesh Bank,’ according to the task force report.

The government repeatedly recapitalised state-owned commercial banks burdened with high non-performing loans, allocating Tk 15,705 crore between FY2008–2009 and FY2016–2017, the report further said, adding that these bailouts failed to improve these banks’ financial health.

Political encroachment was also evident in the appointment of Bangladesh Bank governors.

Under the previous government, these appointments became politicised, prioritising the ruling party’s interests over public welfare.

This directly violated the Bangladesh Bank (Amendment) Act, 2003, which states that ‘No person shall hold office as governor or deputy governor who is a member of the legislature, a local government, or employed in any capacity in public service.’

Despite this legal restriction, the previous government appointed a career bureaucrat as Bangladesh Bank governor, further eroding the institution’s independence.

Political interference also extended to coercion and forced resignations.

On January 5, 2017, intelligence agencies abducted senior officials of Islami Bank and forced them to resign.

The same year, businessman S Alam Group secured control over seven private commercial banks, leading to their financial distress.

Shariah-based banks, in particular, faced severe liquidity shortages after their takeover.

The governance crisis was further exposed by the 2016 cyber heist, in which international hackers stole Tk 679.6 crore from Bangladesh Bank’s treasury account at the Federal Reserve Bank of New York.

Despite the magnitude of the breach, no central bank officials were held accountable.

Instead, efforts were made to suppress the issue, with the Criminal Investigation Department deferring its investigation report for the 80th time as of October 2024, said the report.​

 

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Promoting growth of agent banking

Introduction of agent banking system across the country has taken the banking service to the doorsteps of the common people who so long did not have access to formal financial service. In the traditional banking system, clients have to go to cities and towns for banking purposes; but it is the othe

thefinancialexpress.com.bd

Promoting growth of agent banking
Sarker Nazrul Islam
Published :
Feb 04, 2025 22:03
Updated :
Feb 04, 2025 22:03

Introduction of agent banking system across the country has taken the banking service to the doorsteps of the common people who so long did not have access to formal financial service. In the traditional banking system, clients have to go to cities and towns for banking purposes; but it is the other way round in case of agent banking. Agent banks, aka agency banking, are the banks of the common people at their closer vicinity. Such a service was completely unthinkable for common people in the past when banking transactions were the exclusive affair only of the affluent sections of society. Now people even at the grassroots level with limited financial capacity can avail themselves of the service despite their financial illiteracy.

Agent banks have fulfilled an important need of the people. Within a decade since its introduction in 2013, this innovative financial service system has proved its usefulness in bringing millions of unbanked and underserved communities under the purview of banking services. One of the core advantages of agent banking over traditional banking is that the agents are usually members of the local community having better scope for developing trusted relationship with the service seekers.

Agent banks have brought about a radical change in people's attitude towards the banking system and have achieved significant success in terms of both loan disbursement and deposit collection. With reference to Bangladesh Bank data, this paper reports that loan disbursement by this new category banks reached Tk 9.70 billion in November 2024 from Tk 8.54b in the same month a year ago, posting an increase of about 14 per cent. Deposit collection also showed more than 14 per cent growth to Tk 402.22b from Tk 351.69b in November 2023. Success of these banks is also reflected in the total number of accounts and concentration of the same in rural areas. According to the FE report, 86 per cent of the total 23.89 million accounts are located in villages.

This high percentage of agent bank accounts in rural areas is itself a success in the sense that this system has won the confidence of the rural people and encouraged them to bank with them. This rising popularity of agent banking is an indication of its potential for financial inclusion of people. The steady rise in financial activities demonstrates the growing acceptance of the services. According to the report, the steady upward trend in loan disbursement from Tk 7.73b to Tk 9.7b in January and November 2024 respectively points to rising demand for credit in rural areas, indicating increased liveliness of rural economy.

However, agent banking is not free from challenges. Despite impressive performance, reduction in the number of agents and outlets raises question about the sustainability of the new system. While efforts must be made to find out the problems behind this decline and solve them, incentives should be given to the agents for the expansion of the banking network. For further growth of the agent banking system, experts suggest framing of targeted policies that will encourage banks to expand their network, particularly in areas where people do not have easy access to banking services. The agent banking system will help raise collection of investible surplus and expand rural economy. This innovative banking system should be further expanded at the grassroots level to reach its benefits to the unbanked people.​

 

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Establishment of separate SME bank suggested

A taskforce has suggested establishment of a separate bank or a similar institution to cater the financing need of the small and medium entrepreneurs...

www.newagebd.net

Establishment of separate SME bank suggested
Staff Correspondent 08 February, 2025, 23:17

A taskforce has suggested establishment of a separate bank or a similar institution to cater the financing need of the small and medium entrepreneurs.

The taskforce on ‘Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development’ made the recommendation after finding that the present banking system not equipped to cater to the needs of SME financing.

‘A separate bank or similar institution is needed to serve SMEs financing needs,’ according to the report prepared by the 12-member taskforce led by KAS Murshid, former director general of the Bangladesh Institute of Development Studies.

In its chapter titled ‘Strategies and Action Plan for Development of MSMEs to Enhance Inclusive Growth and Development’, the taskforce report said improvement in accessing institutional finance was imperative for the SMEs accounting for more than 95 per cent of all businesses in the county and contribute to 25 per cent of the gross domestic products.

The draft of the National Small and Medium Enterprise Policy 2025 prepared by industries ministry has also identified that the access to sustainable credit by SMEs as a contentious issue for long.

The unwillingness of banks and financial institutes to provide credits to SMEs became visible with the disbursement of only 27 per cent of Tk 20,000 crore incentive announced by the Bangladesh Bank to tackle the challenge caused by Covid outbreak.

Limited access to finance remained as one of the major challenges for the SMEs over the past decade in Bangladesh, as banks generally favoured larger and well-established companies, according to the White Paper on the State of Bangladesh Economy.

Describing the current SMEs financing windows like Credit Guarantee Scheme and Equity and Entrepreneurship Fund under the Bangladesh Bank flawed or inadequate the taskforce report said the government should provide budgetary allocations to the refinancing scheme and meet up the growing demand for credit of the SMEs.

Describing abundant human capital with inherent aptitude and intellectual capability as advantages the taskforce report also recommended tax break, strengthening the SME foundation, one-stop service centre and developinb Dhaka HAAT to showcase SME products.

It also suggested promotion of ICT applications, E-commerce, online support, outsourcing facilities and other technologies for robust growth of SMEs.​

 

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Why consolidation is crucial for Bangladesh’s banking future

The non-performing loan (NPL) ratio in India stands at around 3 percent, while in Bangladesh, it has skyrocketed to a staggering 13 percent.

www.thedailystar.net

Why consolidation is crucial for Bangladesh’s banking future

The immediate objective of consolidation in Bangladesh’s banking sector would be to protect depositors and prevent systemic collapse. VISUAL: SHAIKH SULTANA JAHAN BADHON

By all objective measures, Bangladesh's banking system is overcrowded. There are 62 scheduled banks under the supervision of Bangladesh Bank, a number that far exceeds that of regional peers when considering banks per capita.

To put this in perspective, India, despite having a population nearly eight times that of Bangladesh, has only 137 scheduled banks—just over twice the number in Bangladesh. Moreover, India's banking system has proven significantly more effective in terms of service penetration: approximately 78 percent of Indians own a bank account compared to only 53 percent of Bangladeshis.

In addition to lower reach, Bangladesh's banking sector struggles with performance. The non-performing loan (NPL) ratio in India stands at around 3 percent, while in Bangladesh, it has skyrocketed to a staggering 13 percent of all outstanding loans (a conservative estimate that may increase further), indicating severe governance and risk management issues.

This raises a critical question: If having more banks hasn't translated into better outcomes, should a reduction in the number of banks be considered as part of the broader reform agenda? And, perhaps most importantly, what approaches can be pursued to drive this consolidation process, and what are the trade-offs involved?

Why is banking sector consolidation necessary

The overbanked yet underperforming state of Bangladesh's banking sector is no coincidence. Over the past few decades, the proliferation of commercial banks has been fuelled by a political culture that treats banks as tools for patronage and, at times, avenues for looting. This unchecked expansion, driven more by political interests than economic needs, has created systemic vulnerabilities.

The consequences are stark. NPLs have surged to an alarming $17 billion, posing a severe systemic risk to the financial sector. The threat of contagion is real: The failure of weak banks with hollowed-out balance sheets could ripple across the system, eroding depositor confidence and destabilising the economy.

To date, Bangladesh Bank has relied on stopgap measures, such as printing money with the intention of mopping it up later, to provide liquidity support to struggling banks. While this offers temporary relief, it does little to address the structural flaws: poor governance, lack of accountability, and unsustainable banking practices.

Experts often point to improving governance across the entire banking system as the solution. However, reforming governance across dozens of weak banks is a monumental challenge. It would require replacing entire boards, overhauling management teams, and retraining operational staff. Even with these measures, weak banks would still face the uphill battle of growing their balance sheets in a contractionary monetary environment.

In light of these challenges, consolidation of the banking system emerges as a pragmatic solution. A smaller banking system would be simpler to govern, more resilient, and better equipped to support sustainable economic growth. In fact, many countries operate with a "Big 4" banking model, where a few dominant, systemically important banks form the backbone of the financial system. These banks are closely regulated and often focus on wholesale and large-scale lending, while smaller, specialised institutions cater to niche markets and underserved segments.

Possible approaches to banking sector consolidation

The immediate objective of consolidation in Bangladesh's banking sector would be to protect depositors and prevent systemic collapse. Potential approaches include shuttering non-viable banks, merging a large number of weak banks together, or integrating weak banks into stronger ones. Each method poses unique challenges and demands careful consideration of the specific circumstances surrounding the banks involved.

The first approach, shutting down non-viable banks, should focus on institutions with hollowed-out balance sheets due to irrecoverable loans. The assets of these banks can be transferred to a government-backed asset management company (AMC) for a token value, while depositors can be compensated using government funds. While this approach ensures deposit holders are made whole, it carries the significant downside of being inflationary if it relies on money printing to fund the initiative. Therefore, it should be limited to the smallest, weakest banks to minimise money printing and its inflationary impact.

Another approach is to merge banks with similar client bases and products to create larger, more resilient institutions. Islami Shariah-based banks, many of which have been severely affected by corruption, could be prime candidates for this strategy. Such consolidation could be supported by capital injections through foreign direct investments (FDI), particularly from Middle Eastern sovereign wealth funds or banking groups capable of providing patient capital and expertise. However, this approach hinges on the ability to attract foreign investments into a distressed and fragmented banking system—a task that will require offering incentives such as tax holidays, exemptions from capital gains tax, and other similar measures.

A final approach, though controversial, is forced consolidation, where weak banks are merged with stronger ones. Even though forced, such a strategy would require substantial liquidity support and regulatory flexibility to ensure it does not significantly impair the financial health of strong banks. To make these deals more viable, the most toxic loans of the weak banks must first be transferred to a government-backed AMC and excluded from the consolidation process. Strong banks must also be granted the discretion to close overlapping branch networks, cherry-pick assets, and selectively retain only essential staff from the weak banks. However, even with such adjustments, strong banks will have little incentive to take on this burden, making forced consolidation a solution that should likely be reserved as a measure of last resort.

Navigating the pain

There is no painless solution for Bangladesh's banking system. Short-term turmoil is inevitable—equity holders of failing banks may be wiped out, and job losses in the sector will be significant. Inflation may spike if significant money printing becomes necessary. Yet, much like treating a sick patient, the medicine must be administered even if distasteful. The focus must remain on managing the immediate side effects while driving the sector towards a full recovery.

The alternative—propping up failing banks indefinitely with government funds—is unsustainable. It merely postpones the inevitable while compounding the cost of reform. Pursuing consolidation will require more than policy directives—it will demand tailored deal-making and robust post-merger integration support. The interim government and Bangladesh Bank must be prepared to engage deeply, navigating complex negotiations to steer this process towards success.

Syed Sadaf Sultan is the founder of Finprojections, a financial consultancy firm, and a former private equity investor based in Singapore.​

 

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Policy rate may remain unchanged

The Bangladesh Bank is expected to keep the policy rate unchanged at 10 percent in its monetary policy stance for the second half (January to June) of the current fiscal year as inflation eased slightly in December.

www.thedailystar.net

Policy rate may remain unchanged
BB to unveil its monetary stance for Jan-Jun today

The Bangladesh Bank is expected to keep the policy rate unchanged at 10 percent in its monetary policy stance for the second half (January to June) of the current fiscal year as inflation eased slightly in December.

The central bank is set to unveil its monetary policy stance today through a press conference scheduled for 3:00 pm at the Bangladesh Bank headquarters. The final decision on the monetary policy stance is expected to be made at the board of directors' meeting of the central bank this morning.

Bangladesh Bank Governor Ahsan H. Mansur will announce the monetary policy stance for the second half of fiscal year 2024-25. This will be the first monetary policy announced by Mansur since he became governor of the Bangladesh Bank following the political changeover on August 5.

Members of the monetary policy committee told The Daily Star that the central bank had initially planned to unveil the monetary policy stance within January but postponed it until Monday (February 10) to review the inflation rate for December.

The governor had hinted that if inflation eased in December, the policy rate would remain unchanged since it had already been raised at an aggressive pace, they added.

Since inflation in December eased slightly, the policy rate is expected to remain unchanged.

In December 2024, inflation declined marginally to 10.89 percent from 11.38 percent in the previous month but remained above the 10 percent threshold for the second consecutive month, according to the Bangladesh Bureau of Statistics. This left the annual average inflation rate for 2024 at 10.32 percent.

Inflation in Bangladesh has remained above 9 percent since March 2023, with the central bank's existing contractionary monetary policy yet to significantly reduce consumer prices. Bangladesh Bank has hiked the policy rate several times, bringing it to 10 percent.

The policy rate is the interest rate at which commercial banks borrow from the central bank.

Beyond inflationary pressure, the overall economy has been facing uncertainties following the fall of the Awami League government. This has been reflected in the deceleration of private sector credit growth.

Private sector credit growth slowed to its lowest pace in at least 11 years due to uncertainty in the investment environment following the recent political changeover. In December 2024, credit flow to private firms grew by 7.28 percent, the lowest since at least 2015, according to Bangladesh Bank data. This was down from 7.66 percent in November.

The current investment climate, banks' cautious lending approach after the political changeover, persistent inflation, increasing lending rates, and poor loan recovery have all contributed to the slowdown in credit growth, industry insiders said.

The volume of defaulted loans reached a staggering Tk 2,84,977 crore as of September 2024, with some banks struggling to provide fresh loans due to a liquidity crunch.

However, the foreign exchange market has shown some flexibility recently, thanks to an uptick in incoming remittances.

Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development, recently said that raising the policy rate to 10 percent had not effectively alleviated inflationary pressure.

"So, it would not be wise to raise the policy rate any further," he added.

Mujeri, a former chief economist of Bangladesh Bank, explained that the central bank's primary tool for addressing inflation is the policy rate. However, further increases would likely harm the economy rather than control inflation, as they would drive up deposit and lending rates.

He suggested that, beyond maintaining a tight monetary stance, the Bangladesh Bank must identify the root causes of inflation and take appropriate measures to reduce it.​