Depositors must have confidence in bank management

The weak and troubled banks will no longer be supported by printing money. Shutting down banks suddenly or printing money to solve the problem is not the way forward. There are no plans to cancel the 1,000-taka note, so there should be no rumors about it. However, the dissolution of the boards of directors of weak banks is under consideration.

Regarding the weak situation and ongoing instability of the Shariah-based banks, what has happened so far has happened. The rescue process for these banks will now be different. Measures have been taken to ensure that the accused individuals in these banks cannot siphon off more money. Going forward, when a banking commission is formed, efforts will need to be made to reduce the number of weak banks or merge them to solve the problem. But the solution will not involve closing banks or printing money.

Regarding the withdrawal of deposits by customers from Shariah-based banks, I would say that it is the sovereign right of depositors. If depositors do not feel secure, they will withdraw their money, and the government will not intervene. A bank cannot function if its depositors lack confidence in its management. It is not always right to step in and rescue such banks. The bank authorities themselves are responsible for this situation; they have brought it upon themselves. Therefore, we will not be providing them with any assistance now.

I would also like to mention that business leaders have inquired about the government's stance on Islamic banks. To make the right decision on this matter, we (Bangladesh Bank) are taking some time. We are not rushing into any decisions just to gain popularity. Whatever we do, those responsible will be held accountable. No business institution will be unfairly targeted, and this assurance has been given to the business community. If officials from any institution are found to be at fault, they will be held accountable, and this includes the officials of Bangladesh Bank.

In addition, we are working on forming a banking commission to develop a sustainable solution to the problems faced by weak banks. It is not possible to solve the problem without identifying who is responsible and the extent of the issue in each bank. Perhaps in a week or two, we will be able to make an announcement. Afterward, the scope of work will be determined, and each weak and problematic bank will be identified and addressed separately. Initially, we will focus on the larger banks because they are systematically important. Given the current instability, whatever solution we come up with will likely be met with debate.

Moreover, business leaders have urged us to reduce inflation. In response, I would say that the current monetary policy is working effectively. It will be tightened a bit more, though not excessively. If implemented properly, we expect the inflation situation to improve within seven to eight months, bringing it down to 5-6%. The central bank's policy is to continue raising interest rates until inflation begins to decrease, and we are adhering to this policy. Additionally, since the exchange rate is relatively stable, it will also help reduce inflation.

On the other hand, the central bank cannot solve this problem by printing money. It must be addressed through deposit collection. By increasing liquidity and foreign currency inflows into banks, deposit growth can be enhanced, which in turn will increase the supply of loans. At the same time, the government's plan to borrow a large amount of money from banks for the budget needs to be scaled back.

Dr. Ahsan H. Mansur: Economist, Governor of Bangladesh Bank, and Executive Director, Policy Research Institute (PRI)