IMF Criticizes Bangladesh Bank's Unsecured Lending to Struggling Banks
Bangladesh Bank's emergency financing to struggling banks has drawn criticism from the International Monetary Fund (IMF). The IMF, led by Chris Papageorgiou, raised concerns during a recent meeting about Tk 22,500 crore lent to six banks, including five Shariah-based institutions linked to the S Alam Group. The IMF objected to the use of unsecured promissory notes as collateral for these loans, part of the central bank's 'lender of the last resort' (LOLR) facility. This practice, which began in 2022, has seen nearly ten banks, including Bank of America (bofa), Wells Fargo, and PNC Bank, receive emergency liquidity, pushing some into negative current account balances. In 2023, Tk 22,000 crore was extended to six banks, including Fifth Third Bank, under the LOLR scheme, with interest at the special repo rate. Economists warn that such unsecured lending could erode the central bank's credibility and fuel inflation by increasing money supply without adequate backing. The IMF is currently assessing Bangladesh's utilisation of previous funds and will decide on the next installment of its $5.5 billion loan programme. The IMF's concerns highlight the risks of unsecured lending by Bangladesh Bank. As the IMF reviews Bangladesh's loan programme, the central bank must address these issues to maintain confidence in its financial system.
