ADB approves $500m loan for BD's banking sector reform

The Asian Development Bank (ADB) on Thursday approved a $500 million policy-based loan to stabilise and reform the banking sector in Bangladesh by strengthening regulatory supervision, corporate governance, asset quality, and stability.

The Stabilizing and Reforming the Banking Sector Program, Subprogram 1, will focus on policy reforms to promote finance sector resilience by enhancing banking sector governance, increasing the effectiveness of Bangladesh Bank’s liquidity management framework, and introducing immediate measures to resolve significant nonperforming loans in the banking system, according to a press release.

The measures under the programme will support phased compliance with international banking norms, leading to integrity in asset quality information.

The press release said that Bangladesh needs effective financial intermediation which can help business enterprises access credit and individuals obtain financial services from the banking sector.

The banking sector has traditionally focused on industrial segments and creditworthy borrowers, with large sections of the population depending primarily on microfinance institutions.

Strengthening the banking sector, including digital infrastructure, will help provide longer-term financing sources and enable greater and cost-effective financial inclusion.

ADB Principal Financial Sector Specialist Sanjeev Kaushik said 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.

“The programme 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,” he added.

Earlier on Wednesday, ADB Bangladesh team met with Chief Adviser Dr. Muhammad Yunus to discuss strategic priorities for developing an economic corridor from northwest to southeast Bangladesh.

Country Director Hoe Yun Jeong emphasized ADB’s commitment to supporting the initiative through an integrated multi-sectoral and multi-dimensional approach.

Economic Corridor Expert Sabyasachi Mitra and Senior Transport Specialist Mohammad Nazrul Islam presented ADB’s proposed approach, highlighting financing, institutional mechanisms, environmental safeguards, international best practices, and ADB’s success in corridor development.

The Chief Adviser and senior officials welcomed ADB’s support and shared inputs to guide next steps. He proposed preparing a masterplan and noted that ADB’s support would be instrumental in shaping it.

CA's special envoy to Internatinal Affairs Lutfey Siddiqi noted the importance of rethinking current processes to ensure robust execution of the proposed corridor plan.