The International Monetary Fund (IMF) has softened its stance on a move of the government to increase banks' exposure to the capital market to 40 per cent of the total capital of a bank company to stabilise the flagging market.

On the other hand, the multilateral lending agency remains rigid about enhancing the authority of the central bank to regulate state-owned commercial banks (SCBs) meaningfully, sources at the Ministry of Finance (MoF) said.

The MoF and IMF have been in discussions to settle the two disputed issues in the process of amending the current Bank Company Act (BCA), 2003.

Against the backdrop of the Hall-Mark scam in collusion with an SCB, the justification to empower Bangladesh Bank (BB) to regulate the boards of SCBs, as suggested by the IMF and a government-commissioned high-powered committee, has been endorsed by economists and former central bankers.

The draft BCA (amended), 2012, despite being approved by Finance Minister AMA Muhith, is yet to be submitted to the Cabinet Division as the issue pertaining to empower BB has not been settled with the IMF yet, a top finance official said.

The conditions of IMF tagged under the Extended Credit Facility (ECF) include, among others, amending the BCA with the provisions of banks' exposure to the capital market by 25 per cent of the total capital and empowering BB to fire bank directors, managing directors and abolish boards of directors of four SCBs.

The existing exposure limit of a bank is 10 per cent of its total liabilities as stipulated in the existing BCA (amended), 2003.

"It is because of the persistent efforts by Finance

Minister AMA Muhith, who during the annual meeting of WB-IMF, held in Tokyo recently, convinced the top policy-makers of the multilateral lending agencies to accept the enhanced exposure of the banks in the capital market," a senior finance official told the FE on Sunday.

He said the draft BCA, however, kept the provision to lower the exposure to 25 per cent, if the situation demands.

The finance ministry officials are still in discussion with the IMF as the government wants to convince the Fund officials that BB has yet to be efficient enough to have all the powers to regulate the SCBs.

A meeting was held on Sunday at Bank and Financial Institution Division under the MoF. Eteri Kvintradze, Resident Representative of IMF, led a delegation to the talks, which was attended by Bank and Financial Institution Division Secretary Shafiqur Rahman Patwary, among others.

None of the participants elaborated on the meeting. But meeting sources said two contentious issues got the highest priority at the discussion.

"I cannot comment now on the issues as discussion is still going on," Eteri Kvintradze told the FE on Sunday, when she was approached by the FE on cell phone.

The IMF asked the government to implement the provisions concerned in the proposed BCA, 2012 as a condition for release of the second installment of its about $1 billion loan for Bangladesh.

The lender approved a $987 million loan to help it overcome macroeconomic pressure and build a buffer reserve.

Bangladesh entered the three-year loan deal by committing to a wide range of structural reforms.

According to the provision of Clause 46(6) of BCA, 2003(amended), the BB cannot remove the government-appointed bank directors, chairmen and MDs. It could only submit report to the government about the malpractices on their part, if the same take place in the banks concerned, the provision says.

The Clause 47 of the same Act also bars the BB from abolishing boards of government-owned banks. The appropriate authority of the BB after meeting certain conditions and formalities could fire bank directors, managing directors (MDs) and abolish the board of directors of private commercial banks only, stipulates the BCA, 2003.

Sources in the finance ministry said they want to hold more meetings with the IMF to keep the current provisions in the BCA on BB's authority on SCBs unchanged.

"We are not submitting the draft BCA to Cabinet Division now. We will fight to the last to convince IMF on the particular issue," a senior official concerned said.

News: The Daily Financial Express/Bangladesh/22th-Oct-12