The Asian Development Bank on Thursday approved a $900 million loan to Bangladesh for reforming its banking sector and strengthening its resilience to impacts of climate change.
Of the total, $500 million will support efforts to stabilise and reform the banking sector, while the remaining $400 million will be towards enhancing climate resilienceThe low-interest loan for banking sector reform, equivalent to Tk 6,150 crore in local currency, comes at a time when discussions are underway regarding merger of several weak banks, intensifying public interest in how the assistance will impact sectoral resilience.
According to the ADB, the policy-based loan has been approved to strengthen regulatory oversight, improve corporate governance, enhance asset quality and increase the overall stability of the banking sector.
The loan under its ‘Banking Sector Stability and Reform Programme, Subprogramme 1’ aims to address longstanding structural weaknesses in the financial system.
The programme will also boost effectiveness of the Bangladesh Bank’s liquidity management framework and introduce urgent measures to address the persistent problem of non-performing loans.
These actions will gradually align Bangladesh’s banking practices with international standards, with a focus on improving transparency in asset quality.
Sanjeev Kaushik, the ADB’s principal financial sector specialist, said that the sector continued to face major constraints, including weak asset quality, tight liquidity conditions, and inadequate financial intermediation — all contributing to low financial inclusion.
‘The programme will bring significant value addition through building the regulator’s capacity for ensuring compliance with international norms, augmenting the capitalisation of the banking sector and improving access to affordable finance for micro, small and medium enterprises,’ he added.
The ADB also underscored the importance of effective financial intermediation in helping businesses secure credit and individuals access essential banking services.
It pointed out that Bangladesh’s banking sector had traditionally focused on industrial borrowers and well-established clients, leaving large segments of the population dependent on microfinance institutions.
By reinforcing the banking sector’s digital infrastructure and promoting longer-term financing, the ADB believed that the programme would support broader, more efficient and inclusive access to finance.
The ADB also approved a $400 million loan to help Bangladesh enhance its resilience against climate impacts, cut emissions in climate-critical sectors and promote inclusive development.
‘The programme will help Bangladesh achieve its climate goals more efficiently by bringing government agencies together and aligning their work with national policies,’ said ADB senior public sector economist Sameer Khatiwada.
‘It will also remove obstacles to mobilising climate finance, reinforce adaptation efforts in priority sectors and speed up actions to reduce climate impacts,’ the economist said.
The programme addresses key constraints such as the lack of a holistic and effective institutional framework, as well as inadequate climate financing and private sector participation. It focuses on creating a supportive environment for climate actions, strengthening adaptation, and accelerating mitigation actions, the ADB said.source : newage