ADB to give $500m to stabilize, reform banking sector in Bangladesh

The Asian Development Bank (ADB) today approved a US$500 million policy-based loan aimed at stabilizing and reforming Bangladesh’s banking sector. This financing is designed to strengthen regulatory supervision, improve corporate governance, enhance asset quality, and bolster overall stability within the financial system.

The program, officially named the “Stabilizing and Reforming the Banking Sector Program, Subprogram 1,” will primarily focus on policy reforms. These reforms seek to promote financial sector resilience by enhancing banking sector governance, increasing the effectiveness of Bangladesh Bank’s liquidity management framework, and implementing immediate measures to resolve the significant volume of nonperforming loans (NPLs) within the banking system, as stated in a press release. The measures under this program are expected to support a phased compliance with international banking norms, ultimately leading to greater integrity in asset quality information.

Sanjeev Kaushik, ADB Principal Financial Sector Specialist, highlighted the key challenges facing the sector: “The key binding constraints in the banking sector include a lack of robust asset quality, tight liquidity, and inadequate financial intermediation leading to low rates of financial inclusion.” He added, “The program will bring significant value addition through building the regulator’s capacity for ensuring compliance with international norms, augmenting the capitalization of the banking sector and improving access to affordable finance for micro, small and medium enterprises.”

Bangladesh requires effective financial intermediation to help businesses access credit and individuals obtain financial services. Historically, the banking sector has concentrated on industrial segments and creditworthy borrowers, leaving large portions of the population dependent on microfinance institutions. Strengthening the banking sector, including its digital infrastructure, is crucial to providing longer-term financing sources and enabling broader, more cost-effective financial inclusion.

The ADB, established in 1966 and owned by 69 members (50 from the region), is a leading multilateral development bank. It is dedicated to supporting inclusive, resilient, and sustainable growth across Asia and the Pacific. The Bank collaborates with its members and partners to address complex challenges, utilizing innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard the planet.

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