Central Bank initiates comprehensive assessment of the financial health of an additional three banks
In a significant move towards financial transparency, the Bangladesh Bank has launched an Asset Quality Review (AQR) of several banks in the country. The initiative, funded by the Asian Development Bank and the World Bank, aims to provide a clearer picture of the banks' financial health.
The first phase of the AQR, completed by Ernest & Young and KPMG, revealed that the default loans of six banks were four times higher than previously reported. The banks under scrutiny in this phase included notable institutions such as Bangladesh Commerce Bank, Al-Arafah Islami Bank, and Islami Bank Bangladesh.
Following the success of the initial phase, the Bangladesh Bank has announced plans to conduct an AQR of three more banks: IFIC Bank, National Bank, and AB Bank. Deloitte Malaysia, a global audit firm, has been assigned to carry out this review.
The second phase of the AQR will also include banks like AB Bank, Bangladesh Commerce Bank, Al-Arafah Islami Bank, IFIC Bank, Islami Bank Bangladesh, Meghna Bank, National Bank, NRB, NRBC, Premier Bank, and UCB.
A preliminary plan has been drafted to spend Tk35,000 crore to merge the remaining five Islamic Shariah-based banks. Tk20,000 crore of this cost will be sought from the government as an investment. This decision comes after a decision in July to conduct an AQR of 11 more banks in the second phase.
The AQR will clarify the actual amount of default loans, provision shortfalls, capital deficits, and the overall state of deposits and loans for the banks under review. The findings of this AQR will determine the future of these banks, whether they will be merged, acquired, dissolved, or strengthened with new capital.
Notably, ICB Islamic Bank has been kept out of the merger process due to its foreign ownership.
In a bid to further strengthen the banking sector, the Bangladesh Bank is considering seeking a loan from the Deposit Insurance Fund and seeking assistance from international organisations like the IMF and the World Bank. A formal letter seeking the government's consent on the proposed plan will soon be sent by the Bangladesh Bank.
The AQR process began with a visit to IFIC Bank's headquarters on August 20. The review's ultimate goal is to ensure the stability and growth of the banking sector in Bangladesh, providing assurance to depositors and investors alike.
