Bangladesh Bank governor Ahsan H Mansur on Tuesday said that the central bank would no longer assist weak and troubled banks by printing money.
He made the statement at a press conference at the central bank鈥檚 head office at Motijheel in the capital Dhaka on the day following a meeting with business leaders.
Mansur observed that using printed money to keep struggling banks afloat would not lead to a sustainable solution to the crisis.
The central bank had provided more than Tk聽14,000 crore to six banks controlled by S Alam Group by generating money.
He also dispelled rumours about demonetising the 1,000 taka note, stating that no such plan existed.
The central bank governor said that dissolving the boards of weak banks was under consideration.
Referring to the instability in the country鈥檚 Sharia-based banks, Mansur said past failures would lead to a different rescue approach.
Measures have been taken to prevent further fund withdrawals by suspected wrongdoers, he said.
He said that weak banks would either be merged or reduced in number once a banking commission was formed, but no banks would be shut down.
Mansur defended depositors鈥� rights to withdraw funds, stressing that the government wound not intervene in their decisions.
A bank cannot operate if depositors lose trust in its management, Mansur said.
He held bank management accountable for the current issues and ruled out any further assistance to such banks.
The business delegation, led by Federation of Bangladesh Chambers of Commerce and Industry president Mahbubul Alam, sought clarity on the government鈥檚 stance on fragile Islamic banks.
Mansur assured them that any individual, including central bank officials, responsible for wrongdoing would be held accountable.
He said that Bangladesh Bank was taking time to ensure that the right decisions were made without rushing to popular but potentially flawed actions.
The governor also announced that the formation of a banking commission would be declared in the next two to three weeks, as part of efforts to address the ongoing issues in the banking sector.
He stressed that the central bank is working towards a sustainable solution for weak banks, starting with larger, systemically important institutions.
Regarding inflation, Mansur stated that the current monetary policy was effective and would be tightened further, albeit moderately.
He hoped that inflation would go down over the next seven to eight months, eventually falling to 5-6 per cent.
On the businesses鈥� concerns about lower flow of funds, Mansur said that the central bank could not solve the problem by printing money; rather the focus must be on deposit mobilisation.
If liquidity and foreign currency flows improve, deposit growth will rise, enabling banks to increase loan availability, he said.
He also urged the government to reconsider its plans to borrow large sums from banks to fund the budget.
He also mentioned the central bank鈥檚 push to reduce the loan default classification period from 180 days to 90 days, though business leaders voiced concerns about the impact of the decision on non-performing loans.