In 2024, the country's banking sector passed through significant transformations, marked by regulatory reforms and leadership changes amid economic challenges. The central bank (BB), implemented a series of measures to stabilize the financial system amid rising inflation, liquidity crises and governance issues.
Early in the year, Bangladesh Bank (BB) introduced Prompt Corrective Action (PCA) framework to address financial instability within banks. This initiative sought to enforce stricter compliance and improve the overall health of the banking sector.
Confronted with persistently high inflation, BB implemented several policy measures during the first half of the fiscal year to contain inflationary pressures.
The banking sector faced severe liquidity crisis throughout the year, with non-performing loans (NPLs) reaching unprecedented levels. Private sector credit growth slowed further reflecting a broader slowdown in investment.
The NPL ratio in the banking sector remained high, indicating ongoing challenges in asset quality. In response to these
challenges, BB adjusted policy rates multiple times to combat inflation. In January 2024, the policy rate was increased from 7.75 per cent to 8 per cent.
Subsequent hikes brought the rate to 8.5 per cent and then to 9 per cent in May. By October, the policy rate reached 10 per cent, marking the fourth increase of the year, as BB intensified efforts to curb inflation.
As part of its strategy to stabilize the banking sector, BB also emphasized the need for mergers and acquisitions among weaker banks to strengthen the financial system. This initiative aimed to enhance operational efficiency and reduce the number of financially distressed institutions.
Despite this, progress on actual mergers and acquisitions remained limited by the end of the year, with few transactions finalized.
Leadership restructuring emerged as a central theme in August following the takeover of the interim government by Dr Muhammad Yunus. The new administration replaced managing directors and chairpersons across several banks to strengthen governance and restore confidence.
Additionally, BB implemented foreign exchange controls and delayed Letter of Credit (LC) payments to manage dollar crisis, to ensure availability of essential imports.
The introduction of an Interest Rate Corridor (IRC) provided a new tool for monetary policy, aiming to stabilize short-term interest rates and manage liquidity within the banking system.
BB also introduced crawling peg exchange rate system in mid-2024 to address the volatility of Bangladeshi taka against major currencies. This system aimed to allow currency adjustment gradually, providing greater stability in the foreign exchange market. The crawling peg helped manage inflationary pressures while facilitating trade and investment.
The international community lent support to Bangladesh during this period. The International Monetary Fund (IMF) reached a staff-level agreement on the third review of Bangladesh's Extended Credit Facility, Extended Fund Facility, and Resilience and Sustainability Facility arrangements.
These measures were focused on signaling confidence in the country's economic policies. Furthermore, the World Bank approved financing totaling $1.16 billion to aid inclusive and climate-resilient development, underscoring the importance of sustainable growth.
Despite these efforts, challenges persisted. Reports indicated that banks faced a catastrophic year amid liquidity crisis, with depositors experiencing unprecedented difficulties to withdraw savings.
The central bank's measures, including policy rate hikes and leadership changes, aimed to address these issues and restore stability.
As the year concluded, economic indicators presented a mixed picture. Remittances through formal channels totaled $26.67 billion from January to December 28, reflecting a 22 per cent year-on-year increase and providing a significant boost to foreign exchange reserves.
However, inflation remained high indicating ongoing price pressures. The IMF projected real GDP growth at 5.4 per cent for 2024, suggesting moderate economic expansion despite the challenges faced.
The year 2024 was a transformative year for the country's banking sector, characterized by significant reforms and persistent challenges. The regulatory authorities and international partners aimed to stabilize the financial system which laid the groundwork for future sustainable economic development.
