[🇧🇩] Banking System in Bangladesh

[Saif]

World Bank flags deepening crisis in banking sector

Bangladesh’s banking sector faces significant challenges due to longstanding structural weaknesses and recent emerging risks, according to the World Bank (WB).

www.thedailystar.net

World Bank flags deepening crisis in banking sector

Bangladesh's banking sector faces significant challenges due to longstanding structural weaknesses and recent emerging risks, according to the World Bank (WB).

Low economic growth due to political uncertainty, forex shortage, and low investor confidence are feared to worsen vulnerabilities in the financial sector, dominated by banks representing 88 percent of total financial sector assets.

In its April issue of "Bangladesh Development Update" released yesterday, the multilateral lender said the sector has been suffering from high levels of non-performing loans (NPLs), low capital adequacy, and operational inefficiencies.

"Governance issues, regulatory capture, political interference in lending, and related-party lending have worsened the sector's performance and solvency over the years," it said.

The report said despite Bangladesh's strong economic growth, financial sector vulnerabilities remained persistent and the authorities left these deficiencies unaddressed, and weak banks were suffering from NPLs and capital shortages.

The adoption of international prudential standards was slow, and forbearances were granted repeatedly, it said.

The WB said the banking sector has shown robust growth in terms of loans and deposits over the years, with loans and investments accounting for 85 percent of banks' balance sheets.

The composition of loans is heavily skewed towards corporate lending, with the industrial and trading sectors being the largest recipients of bank loans.

Overdue loans remain a persistent challenge across all sectors, reflecting broader financial vulnerabilities, it added.

In terms of credit distribution, the industrial sector holds the largest share of outstanding loans at 42 percent, followed by trade and commerce at 34 percent, while the remaining sectors collectively account for 24 percent, it said.

The WB said gross NPLs more than doubled to Tk 290,000 crore in September 2024, and the NPL rate rose to 20.2 percent in December 2024.

About 46 percent of the banking sector's NPLs were confined to nine state-owned banks, it said.

Citing the BB, it said the central bank expects that NPLs would likely exceed 30 percent in view of the 90-days-past-due rule under the new NPL definition aligned with international standards, effective in April 2025, and strict enforcement.

The WB said widespread capital shortfalls across banks reveal deep structural weaknesses, necessitating urgent regulatory and policy interventions.

"State-owned commercial banks are the most vulnerable in the banking sector, contributing significantly to its overall strain," it said.

It said weak banks were experiencing liquidity shortages despite recent improvements in overall sector liquidity.

The Washington-based lender said the experiences of past banking crises highlight the importance of prompt resolution actions.

REFORM INITIATIVE BY THE INTERIM GOVT

The WB said following the regime change and recognising the fragility of the banking sector, the interim government and Bangladesh Bank (BB) embarked on financial sector reforms, revealing true vulnerabilities in the sector.

"These efforts started revealing the true weaknesses in the banking sector, leading to higher NPLs and more widespread capital shortages, requiring immediate attention by the BB and the government," it said.

The multilateral lender added that while efforts were in progress, additional work was required to complete the reform.

"Strengthening supervisory enforcement, improving transparency in state interventions, and aligning resolution mechanisms with international best practices are critical to restoring financial sector stability and ensuring long-term resilience," it said.

The WB also said Bangladesh needs to strengthen the financial sector safety net.

The Deposit Protection System (DPS), managed by BB's Deposit Insurance Department, is one of the key pillars, it said.

It requires a stronger legal framework and institutional capacity, building on the Deposit Protection Ordinance, for robust data management and payout procedures, it added.

"An effective NPL resolution and recovery system is indispensable. The existing legal framework fails to facilitate swift loan recovery, with courts being overburdened and borrowers able to file writ petitions in money loan courts, which delays the entire process," it said.

"The procedure for seizing collateral is lengthy and time-consuming, further exacerbating the issue," said the WB.

The WB lauded the BB's efforts but suggested that the authorities improve corporate governance and risk management, and restructure state-owned banks.

It also recommended the establishment of a robust NPL management framework, enactment of a comprehensive bankruptcy law, and enforcement of banking regulations.

The WB said full autonomy of the BB in its regulatory, supervisory, and decision-making processes was necessary.​

 

[Saif]

World Bank recommends 10 steps to mitigate bank sector risks

The World Bank has made 10-point recommendations to strengthen the banking sector in Bangladesh

en.prothomalo.com

World Bank recommends 10 steps to mitigate bank sector risks
Staff Correspondent Dhaka
Updated: 24 Apr 2025, 21: 14

The World Bank File Photo

The World Bank has made a 10-point recommendation to strengthen the banking sector in Bangladesh, noting that the sector is now facing multifaceted challenges.

In a latest report titled ‘Bangladesh Development Update”, the global financier said the authorities in Bangladesh made commendable efforts since August 2024 to effectively address current banking sector distress.

Still, some key measures can be taken to bolster the banking sector reforms.

Strengthen bank resolution framework

Building on the Bank Resolution Ordinance currently under review, authorities should establish a robust bank resolution framework with strong execution capabilities to enable swift intervention and orderly restructuring. This includes implementing a clear classification system for banks based on viability and systemic importance, allowing for the prompt resolution of nonviable institutions while ensuring adequate depositor protection to prevent financial contagion.

Strengthen the deposit protection system

Enhance the existing DPS by establishing a clear and efficient payout mechanism that aligns with international standards. This includes ensuring that the Deposit Protection Fund is adequately funded and liquid and strengthening the Deposit Protection Department of the BB.

Strengthen corporate governance and risk management

Authorities should prioritize corporate governance in banks by ensuring that their boards consist of competent professionals rather than political appointees. Management should be granted full operational freedom to mitigate political influences and enhance the integrity of lending decisions. Fit and proper criteria must be implemented for selecting directors of banks, especially State-Owned Commercial Banks. Additionally, the number of independent directors should be increased, and regulatory actions must be taken against any director for wrongdoing, regardless of whether they were appointed by the government. Authorities should require banks to strengthen transparency, internal controls, and independent oversight to ensure early detection of irregularities and compliance with regulatory standards. Banks must also adopt robust comprehensive risk management frameworks, including credit and market risk management, early warning systems, stress testing, and enhanced liquidity management to mitigate financial vulnerabilities.

Reform of state-owned banks

The authorities should prioritize the reform of SOBs with sustainable financial and business models, ensuring that SOBs are properly supervised and operate on a level playing field related to prudential regulations and competition (OECD 2024; WB 2021). This would help stabilize the financial sector, enhance operational efficiency, and improve resource allocation and financial intermediation. Bangladesh Bank could consider allowing some SOBs to take over its development finance function so that it could focus on its core mandate. Other SOBs could be converted to banks operating on commercial principles. In addition, authorities should ensure SOBs are effectively managed, and the incentives of management and staff should be aligned with the objectives of the institution through effective corporate governance, risk management, and performance evaluation mechanisms.

Implement a robust NPL management framework

Authorities should establish a clear NPL resolution framework that includes legal processes, debt restructuring, and operational guidelines for asset management companies. These institutions should be empowered to purchase NPLs, restructure distressed assets, and sell them to maximize recovery, ensuring rapid resolution and minimizing systemic risks.

Enact a comprehensive bankruptcy and insolvency law

The existing Bankruptcy Act, 1997, should be strengthened, or a new, comprehensive bankruptcy and insolvency law should be enacted to streamline the liquidation process, protect small investors, and simplify business operations. This should include timebound procedures to expedite resolutions in Money Loan Courts.

Enhance the enforcement of banking regulations and supervision

The regulator should enforce banking regulations rigorously, with strict punitive measures for noncompliance. This includes implementing regular audits, proper disclosures, and ensuring that all financial institutions adhere to established guidelines. Furthermore, regulators should not allow undue deferral of regulatory requirements to hide the distress of banks.

Establish emergency liquidity assistance framework

Implement a robust ELA framework to provide timely and secured liquidity support to banks facing temporary liquidity shortages. This framework should include clear eligibility criteria, collateral requirements, and transparent procedures to ensure that liquidity assistance is provided only to solvent banks with adequate collateral. Additionally, the central bank should regularly review and update the ELA framework to adapt to changing market conditions and mitigate systemic risks.

Adopt intl best practices in bank regulation and supervision

To strengthen the resilience of the banking sector, Bangladesh should adopt international best practices in banking regulation and supervision. This includes aligning regulatory frameworks with global standards such as International Financial Reporting Standard (IFRS) 9 for better financial reporting, dynamic provisioning to address credit cycle fluctuations, and the full adoption of Basel III including the Internal Rating-Based approach for more accurate risk assessment. Additionally, improving the capacity of regulatory bodies and ensuring timely and effective interventions will help prevent systemic risks and ensure long-term financial stability.

Strengthen the independence of Bangladesh Bank

This can be achieved by ensuring that BB operates with full autonomy in its regulatory, supervisory, and decision-making processes. Specifically, the appointment of BB’s governor and key officials would be based on merit and expertise, with transparent and competitive selection processes, free from political interference.

Additionally, BB would be granted full discretion and authority to take corrective actions against non-compliant banks, particularly SOBs, without requiring approval from the Ministry of Finance. BB's financial and operational independence would be enshrined in law, with its funding sources separated from government control to avoid undue influence over its monetary policy and regulatory actions.​

 

[Saif]

Is merger of Islamic banks a viable solution?

While Islamic banking is expanding despite the governance problems of some lenders led by the controversial S Alam Group, Bangladesh Bank Governor Ahsan H Mansur recently signalled that the government may create two Islamic banks by merging all existing ones.

www.thedailystar.net

Is merger of Islamic banks a viable solution?

While Islamic banking is expanding despite the governance problems of some lenders led by the controversial S Alam Group, Bangladesh Bank Governor Ahsan H Mansur recently signalled that the government may create two Islamic banks by merging all existing ones.

He also stated that the country's Islamic banking sector would be completely restructured as most of the existing Islamic banks are currently in trouble.

Mansur shared the plan as the interim government has already approved the Bank Resolution Ordinance, 2025, with weak banks likely to merge or have their problems resolved under the ordinance.

Shariah-based banking has been gaining popularity in Bangladesh – even more so than conventional banking – but the sector faced an image crisis after S Alam Group took over several Islamic banks one after another.

In recent years, Standard Bank and Global Islami Bank converted from conventional to Islamic banking due to its growing popularity. Many conventional banks remain interested in converting to Islamic banks even though they already offer Islamic banking services through dedicated branches or windows.

Currently, there are 10 full-fledged Islamic banks in the country: Islami Bank Bangladesh, Al-Arafah Islami Bank, Social Islami Bank, Standard Bank, EXIM Bank, First Security Islami Bank, Shahjalal Islami Bank, Union Bank, Global Islami Bank, and ICB Islamic Bank.

At the end of last year, the total deposits of these 10 banks stood at Tk 385,250 crore while their total investments stood at Tk 486,500 crore.

Following the political changeover on August 5 last year, the central bank removed the family members of S Alam Group owner Mohammed Saiful Alam from six full-fledged Islamic banks that were under the control of the Chattogram-based business tycoon.

Most of these six banks, which suffered from massive irregularities, are now recovering financially. Among them, Islami Bank Bangladesh and Social Islami Bank are seeing a quick recovery from their liquidity crises.

In the Islamic banking sector, Shahjalal Islami Bank is in good financial health while the condition of Al-Arafah Islami Bank and Standard Bank is not bad either despite some lingering governance issues.

However, the chief executives of at least three Islamic banks told The Daily Star that merging all 10 Islamic banks to create two large institutions is not considered realistic.

They said two or three Islamic banks could be merged considering their financial health, and that the central bank governor's remarks caused concern among depositors.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said that bringing good governance and improving financial health are more important than reducing the number of banks.

He said that if the number of banks comes down without ensuring good governance, then the outcome will amount to nothing.

"The interim government and central bank should take initiatives to remove the existing problems of the banking sector and run it in the right direction, but we have not seen any visible improvement till now," said Mujeri, also the former chief economist of Bangladesh Bank.

He pointed out that problems in the Islamic banking sector are related to governance issues, which would not be solved if the government created two large Islamic banks by merging existing ones.

"Now the weak banks will have to strengthen instead of reducing the number because just reducing the number is not the solution," he said.

Mohammed Nurul Amin, independent director and chairman of Global Islami Bank, said that weak Islamic banks should be strengthened first and only then can they be merged. Otherwise, it will not bring any positive outcome.

"Now those types of banks will have to survive, then the government can merge them under the Bank Resolution Ordinance," he added.

The majority of Islamic banks are now undergoing asset quality reviews by global audit firms as part of the central bank's reform agenda. Following these reviews, some banks may be merged, as per industry insiders.​

 

[Saif]

Banks witness steady growth in deposits

Deposits in the country’s banking sector grew by 7.9 per cent in February compared with that in the same month in 2024...

www.newagebd.net

Banks witness steady growth in deposits
26 April, 2025, 22:39

New Age file photo

Deposits in the country’s banking sector grew by 7.9 per cent in February compared with that in the same month in 2024.

According to Bangladesh Bank data, total deposits, excluding interbank and government deposits, reached Tk 17,92,685 crore in February 2025, while it was Tk 16,61,649 crore in February 2024.

The steady rise suggests that depositor sentiment is improving after months of volatility, liquidity shortages, and widespread concern about the safety of bank-held funds.

Deposit growth had remained at 8.28 per cent in January, 7.44 per cent in December, 7.46 per cent in November, 7.28 per cent in October, and 7.26 per cent in September, indicating a gradual recovery of depositor confidence following a prolonged period of financial instability and public mistrust.

However, deposits have been increasing by more than Tk 10,000 crore on average per month, with figures reaching Tk 17,81,287 crore in January, Tk 17,76,747 crore in December, Tk 17,62,855 crore in November, Tk 17,55,217 crore in October, Tk 17,31,260 crore in August, and Tk 17,34,026 crore in July.

Bankers said that the easing of political unrest following the fall of the Awami League government on August 5, 2024, and the installation of a new administration has helped ease public anxiety.

During the previous regime, the banking sector was marred by rampant irregularities, mounting default loans, aggressive insider lending, and the controversial expansion of bank licenses to politically linked business groups. Public concern peaked in mid-2024, with widespread withdrawal of funds, particularly from private commercial banks, which were under the control of controversial S Alam Group, they said.

The central bank’s repeated assurances, coupled with direct liquidity support to weak banks, have helped calm nerves.

Bangladesh Bank injected over Tk 30,000 crore into six financially distressed banks since October, 2024, helping them meet withdrawal pressures. The liquidity support, along with rising deposit interest rates, has made banks more appealing to savers, they said.

As a result, currency held outside banks declined to Tk 2.71 lakh crore in February from Tk 2.74 lakh crore in January and Tk 2.76 lakh crore in December.

In February, Tk 16 lakh crore was held in time deposits, while Tk 1.90 lakh crore was in demand deposits, reflecting a preference for fixed savings instruments.

While the current figures signal a positive shift, experts caution that lasting stability will require deep structural reforms. Legacy issues—such as non-performing loans (NPLs), lack of accountability in loan disbursement, and politically influence—must be addressed comprehensively, they said.

The central bank has already begun reassessing bank mergers, revising oversight rules, and taking disciplinary action against wilful defaulters, which helped to restore depositors› trust.

Meanwhile, loan disbursements have continued to rise, crossing Tk 22 lakh crore in February from Tk 21.89 lakh crore in January and Tk 21.77 lakh crore in December.​

 

[Saif]

Carry out thorough reforms in banking sector

Bankers and experts on Wednesday underlined the need for comprehensive reforms within the country's banking sector. They urged both the government and international bodies like ICC and WTO to come forward to provide solutions. They came up with the observations at a dialogue titled "Global Financ

thefinancialexpress.com.bd

Carry out thorough reforms in banking sector
Demand experts at ICC dialogue
FE REPORT
Published :
May 01, 2025 08:34
Updated :
May 01, 2025 08:34

ICC Bangladesh President Mahbubur Rahman (centre) moderated the ICC Dialogue on ‘Global Financial Trends & Reforms : Implications for Bangladesh’ held in Dhaka on Wednesday. It was attended by Bangladesh Bank Deputy Governor Md. Zakir Hossain Chowdhury (5th from left) as Chief Guest and ICC Global Banking Commission Chairman Florian Witt (5th from right) was the Keynote Speaker. Also seen in the picture as panel speakers are (L-R) : ICCB Secretary General Ataur Rahman; ADB Lead Investment Officer Bidyut Kumar Saha; Standard Chartered MD Enamul Huque; BAB Chairman Abdul Hai Sarker; ICCB Vice President A. K. Azad; ABB Chairman & MD of BRAC Bank Selim R F Hussain; HSBC CEO Md. Mahbub Ur Rahman and Professor of BIBM Dr. Shah Md Ahsan Habib. — FE Photo

Bankers and experts on Wednesday underlined the need for comprehensive reforms within the country's banking sector.

They urged both the government and international bodies like ICC and WTO to come forward to provide solutions.

They came up with the observations at a dialogue titled "Global Financial Trends and Reforms: Implications for Bangladesh" organised by International Chamber of Commerce, Bangladesh (ICCB) at a city hotel.

Speaking on the occasion, President of ICC Bangladesh Mahbubur Rahman, who moderated the event, said that the full implementation of additional US tariffs could significantly strain the nation's banking system by reducing export earnings, tightening foreign currency liquidity, and escalating non-performing loans, particularly in trade-reliant sectors.

"It is therefore imperative for Bangladesh to adopt resilient financial strategies and regulatory reforms that safeguard economic stability in the face of these external shocks." He said despite the economy's resilience in many areas, structural weaknesses within the financial sector remain a critical challenge.

"This underscores the urgent need for comprehensive banking reforms, enhanced regulatory oversight and strategic policy interventions to bolster financial sector confidence and ensure sustainable economic growth in the coming years." He said the recent Bangladesh Development Update report by World Bank warned of a deepening crisis in the country's banking sector, citing long-standing structural weaknesses, rising non-performing loans (NPLs), and governance challenges.

He said the report flags that gross NPLs have doubled to over Tk 2.9 trillion, with nearly half of these concentrated in nine state-owned banks. "Capital shortages, slow adoption of international standards and a fragile legal and institutional framework for loan recovery are among the systemic issues urgently needing reform." Mr Rahman said if these issues are left unaddressed, it may undermine both financial stability and investors' confidence.

"The interim government's recent reform initiatives, in coordination with the Bangladesh Bank, are beginning to uncover the full extent of these risks," he said adding that the message is clear: reform is not optional; it is essential.

ICC Vice-President AK Azad urged International Chamber of Commerce (ICC) and World Trade Organisation (WTO) to pay attention to the aftermath of implementation of US tariffs to countries like Bangladesh. He also underscored the need for ICC and WTO interference for the settlement of insurance claim for the damaged factories during political turmoil. He urged the central bank to open the exchange rate.

Florian Witt, Chair of the ICC Global Banking Commission, in his keynote, echoed the call for transformative action within Bangladesh's banking sector. He specifically advocated for the revitalization of state-owned banks through strategic recapitalization and aggressive NPL reduction.

Witt also proposed a framework that encourages bank mergers to create larger, more resilient banking groups. Addressing the challenges faced by Islamic and troubled private sector banks, he emphasised the necessity of thorough forensic audits to inform potential mergers, recapitalization efforts, and the bolstering of Tier-1 capital. A key recommendation included the adoption of international standards for NPL categorization. While acknowledging potential challenges, Witt also offered a forward-looking perspective, suggesting that the future of banking lies significantly in the Global South.

Deputy Governor of Bangladesh Bank Md. Zakir Hossain Chowdhury, who was present as the chief guest, said Bangladesh Bank has taken a lot of reform activities recently, but time hasn't come yet to evaluate the result of the reform. He said Bangladesh Bank always consult with stakeholders, private sectors and development partners.

Chairman of Bangladesh Association of Banks and Chairman of Dhaka Bank PLC Abdul Hai Sarker said if all the stakeholders work together, Bangladesh can cope up with changes coming.

Chairman of Association of Bankers Bangladesh (ABB) Selim R F Hussain said Globalisation 2.0 is going to be very different from what it was earlier as many geopolitical changes are happening across the world. There is something that cannot be influenced by small countries like Bangladesh; they can only try to respond to them.

"It will be important for us to get together as a group with all the relevant stakeholders and respond to this various changes that are happening," Coordination across the various regulators and ministries needs to be far faster than they are currently.

Managing Director of Standard Chartered Bank Bangladesh Enamul Huque said Bangladesh should look for time-befitting ways to cope with the global economic situation challenged by the tariff imposed by Trump administration. Bangladesh should focus more on high valued apparel items like manmade fiber (MMF), he said.

Chief Executive Officer of The Hongkong and Shanghai Banking Corporation Ltd. Md. Mahbub Ur Rahman said global supply chain is going through changes including notable growth in south-south trading. "Global context is shifting, the market is being shifted, and so is the supply chain," he said adding that this trend is opening up new markets. Regarding letter of credit (LC) opening in the country, he said many businesses in Bangladesh import their merchandise through LC whereas exports are done based on contracts instead of LC. "How can we strike the balance?" he asked.

He also said Bangladesh should address issues like developing more infrastructure, supply chain reconfiguration, and logistics facilitation in the country for strengthening its trade competitiveness with other countries.

Professor of Bangladesh Institute of Bank Management (BIBM) Dr. Shah Md Ahsan Habib said problems lying in Bangladesh's banking sector are unique. "That's why it is not possible to directly follow the practices of developed countries. Our level of financial literacy and our understanding on risk are relatively low," he said. Despite this many banks and businesses are doing fantastic jobs, even their activities are replicable, he added.

Lead Investment Officer, Private Sector Operations Department, Bangladesh Resident Mission Asian Development Bank Bidyut Kumar Saha said many of the vulnerabilities of the banking sector are rooted within the country. "So irrespective of any global development in the financial sector or anything else, the ongoing reform efforts by the government and the central bank need to be carried out in full force," he said. ADB is happy to be working with the government and other stakeholders to this effect, he said.

ICCB Secretary General Ataur Rahman also spoke at the dialogue.​

 

[Saif]

Banks in disarray to finalise financial statements

The listed banks are obliged to finalise and publish their financial statements within four months after the financial year.

en.prothomalo.com

Banks in disarray to finalise financial statements
Shanaullah SakibDhaka
Published: 04 May 2025, 19: 49

Photo shows customers receiving services at a bank. File photo

The annual financial statements of more than 50 per cent of private sector banks have been delayed, leaving them unable to finalise their accounts or declare dividends.

Such a situation has arisen as the banks are trying to follow the rules and regulations of the Bangladesh Bank.

Some 21 listed banks have been unable to finalise their financial statements, even after convening board meetings for that purpose. Besides, some banks have canceled scheduled meetings at the last moment.

State-run banks are also facing similar difficulties. According to bank sources, some banks finalised their reports but did not receive a no-objection certificate (NOC) from the central bank. On the other hand, some banks got their NOC revoked after receiving it from the central bank. Hence, some banks had to cancel their board meetings at the eleventh hour.

The listed banks are obliged to finalise and publish their financial statements within four months after the financial year. However, most banks have failed to meet this deadline.

In March, Bangladesh Bank issued new policies over dividend declarations. Under the new rules, banks that received deferred benefits from the central bank and failed to maintain capital deposit or adequate provisioning are barred from paying dividends for 2024. As a result, most banks have been caught in a regulatory bind.

Additionally, there has been no consensus with Bangladesh Bank on several financial issues – such as hidden default loans – for banks that underwent changes in ownership or management after 5 August.

Sources at Bangladesh Bank said a political leader, who is very influential in the present context, pressured the central bank to offer regulatory leniency to banks under his control, but the issue remains unresolved. Financial statements of the banks have been stuck too.

Earlier, some banks have faced fines for failing to publish financial statements on time. This year, however, Bangladesh Bank has requested the government to grant an extension, citing the unusually high number of pending reports.

Speaking to Prothom Alo, Bangladesh Bank executive director and spokesperson Arif Hossain Khan said, “The time for approving the annual financial statements has expired. If the government permits, the banks will be given an additional period. Bangladesh Bank is awaiting a decision from the government.”

Banks in trouble

As per regulations, Bangladesh Bank audits activities of all banks. Before that, the banks carry out initial audits by themselves and external audit firms. All financial information, including defaults, is revealed in the audits. Later, the banks, audit firms, and Bangladesh Bank finalise the financial statements. According to the final reports, the central bank determines the dividend limits for the banks.

According to Bangladesh Bank sources, the central bank carried out audits professionally this year after a long time with officials visiting many projects of the banks. Besides, board of directors were reshuffled at 14 banks, mostly facing loss.

Of them, S Alam Group-controlled Islami Bank, Social Islami Bank, First Security Islami Bank, Global Islami Bank, Union Bank, Al-Arafah Islami Bank, Commerce Bank, and National Bank faced losses.

Besides, IFIC Bank, controlled by adviser to former prime minister Sheikh Hasina, Salman F Rahman, UCB Bank of former land minister Saifuzzaman Chowdhury and EXIM Bank of former president of Association of Bankers, Bangladesh, NRB Bank and NRB Commercial Bank face crisis. These banks were also marred by various irregularities.

Other than this, eight listed– Dhaka Bank, AB Bank, Mercantile Bank, ONE Bank, Premier Bank, South Bangla Agriculture and Commerce Bank, Southeast Bank, and Standard Bank – and several other banks could not finalise their financial statements.

A member of the board of directors of a first generation bank told Prothom Alo, “The meeting agenda of the bank’s board of directors included the approval of financial statement on Wednesday as they had the no objection certificate (NOC) from Bangladesh Bank. After the meeting started, we learned that financial statement cannot be approved because the central bank directed to return the NOC. So, the meeting no longer proceeded.”

Besides, state-run banks including Sonali Bank, Janata Bank, Rupali Bank, BASIC Bank and Bangladesh Development Bank could not finalise their financial statements in the stipulated time.

Banks that finalised financial statements

Meanwhile, 15 out of 36 banks listed in stock markets finalised financial statements. They are City Bank, BRAC Bank, Pubali Bank, Dutch-Bangla Bank, Bank Asia, Eastern Bank Limited (EBL), Jamuna Bank, Midland Bank, Mutual Trust Bank (MTB), NCC Bank (National Credit and Commerce Bank), Prime Bank, Shahjalal Islami Bank, Trust Bank, Uttara Bank, and ICB Islamic Bank. Five of them saw a rise in profits and 10 witness a drop.​

 

[Saif]

19 banks suffer record capital shortfall of Tk 1.71 lakh crore

The capital shortfall in 19 banks in Bangladesh soared to record Tk 1,71,777 crore by the end of December 2024, marking the worst capital position in the country’s banking history...

www.newagebd.net

19 banks suffer record capital shortfall of Tk 1.71 lakh crore
Mostafizur Rahman 04 May, 2025, 22:38

New Age photo

The capital shortfall in 19 banks in Bangladesh soared to record Tk 1,71,777 crore by the end of December 2024, marking the worst capital position in the country’s banking history.

After the political shift on August 5, a flood of previously masked non-performing loans (NPLs) has come to light, pushing many banks to the brink of collapse.

The Awami League government and its favoured business groups were repeatedly accused of engineering ‘window-dressing’ within bank balance sheets to conceal defaulted loans.

The Bangladesh Bank data shows that Janata Bank, a state-run institution, has emerged as the most critically distressed bank with its capital shortfall ballooning to Tk 52,890.85 crore in December.

Its capital adequacy ratio (CRAR) plunged to a shocking negative 34.6 per cent, reflecting the severity of the bank’s erosion in capital base.

The situation at Janata illustrated years of unchecked loan irregularities, politically-backed lending, and chronic mismanagement.

Bangladesh Krishi Bank followed with a shortfall of Tk 18,188.71 crore. Among other state-owned commercial banks, Rupali Bank (Tk 5,192 crore), Agrani Bank (Tk 4,686 crore), BASIC Bank (Tk 3,156 crore), and Rajshahi Krishi Unnayan Bank (Tk 2,470 crore) also posted severe capital deficits.

The crisis has taken a sharp toll on shariah-based banks as well. Of the 10 Islamic banks operating in the country, eight ended the year with substantial capital shortfalls.

Union Bank topped the list with a Tk 15,689.67 crore shortfall, followed by First Security Islami Bank (Tk 13,991 crore), Islami Bank Bangladesh Limited (Tk 12,885 crore), and Social Islami Bank (Tk 11,708 crore).

Other troubled Islamic banks include Global Islami Bank (Tk 2,904 crore), ICB Islami Bank (Tk 1,909 crore), Standard Bank (Tk 1,862 crore), and Al-Arafah Islami Bank (Tk 254 crore).

These banks, except ICB and Standard Bank, were controlled by controversial S Alam Group, which drained massive amount of loans from the banks through anonymous names.

In addition, IFIC Bank posted a shortfall of Tk 9,029 crore, National Bank Tk 7,798.64 crore, Padma Bank Tk 4,985 crore, Bangladesh Commerce Bank Tk 1,656 crore, and AB Bank Tk 517.75 crore.

The explosion of NPLs — rising by Tk 2 lakh crore in just one year to reach Tk 3.45 lakh crore by December 2024 — has forced banks to allocate significantly higher provisioning, further eroding their capital base.

Around 20 per cent of the banking sector’s total outstanding loans of Tk 17.11 lakh crore are now classified as non-performing, the highest ratio in South Asia.

The overall capital to risk-weighted assets ratio (CRAR) in the banking sector fell to 3 per cent in December, far below the regulatory minimum of 10 per cent.​

 

[Saif]

Climate shocks and banking sector

Climate change has become a grave concern worldwide as there is no way to prevent or avoid it. The consequences of climate change are the rise in temperature, intense droughts, water scarcity, severe fires, rising sea levels, flooding, melting polar ice, catastrophic storms, and declining biodivers

thefinancialexpress.com.bd

Climate shocks and banking sector
Asjadul Kibria
Published :
May 11, 2025 00:04
Updated :
May 11, 2025 00:04

Climate change has become a grave concern worldwide as there is no way to prevent or avoid it. The consequences of climate change are the rise in temperature, intense droughts, water scarcity, severe fires, rising sea levels, flooding, melting polar ice, catastrophic storms, and declining biodiversity. The change affects human health, ability to grow food, housing, safety and work. Billions of people are already more vulnerable to climate impacts, and more will be affected in the near future. For instance, conditions like sea-level rise and saltwater intrusion have reached the point where whole communities have had to relocate, and protracted droughts are putting people at risk of famine. Scientists predicted that the number of people displaced by weather-related events will rise soon.

Various global and regional initiatives are underway to mitigate and adopt climate change. Scientists and environmentalists have already conducted several research studies on this topic. They are also exploring new viewpoints to study the impact of climate change. Central banks have joined the move by introducing climate stress tests on banks and financial institutions to address climate-related risks to the financial system.

Stress tests are 'assessments of how well banks can cope with financial and economic shocks'. The tests allow supervisors or regulators to identify banks' vulnerabilities and work with those institutions to address them. Stress testing is one of the measures institutionalised by the Basel Accords after the 2008 global financial crisis to reduce economic damage from banks taking too much risk. The second pillar of the Basel Framework reinforces the first pillar by setting minimum capital requirements to determine whether banks require additional capital buffers to withstand stressed situations.

Climate stress tests are a new tool for assessing banks' resilience to transition risks arising from new policies and technologies and physical risks due to acute and chronic extreme weather events. They are based on 'different predictions of the policies that might be implemented and the ability of those policies to prevent critical temperature thresholds from being breached.'

The use of the new tool is still limited. The European Central Bank conducted an economy-wide stress test in 2021, and launched its first climate risk stress test for individual banks in January 2022. Bank of England (BoE), Federal Reserve, People Bank of China and some other leading central banks also conducted one or more climate stress tests in last three years.

Taking a cue from the global exercise, Bangladesh Bank also conducted the country's first climate stress test last year, assuming that the country's financial system may face significant challenges from climate-induced gross domestic product (GDP) slowdown in the coming years. The central bank also released the outcome of the exercise last month titled 'An Exploratory Report on Climate Stress Testing for the Banking Sector of Bangladesh.'

Before looking into the findings, getting a brief idea of the exercise method is necessary. To conduct the study, Bangladesh Bank first selected five commercial banks as a sample, and these chosen banks hold around 30 per cent of the total assets of the country's banking sector. The report is prepared based on data available as of March 31, 2024 when the banking industry's total assets stood at Tk 1,181.76 billion. Thus, the combined assets of the five sample banks were around Tk 354.60 billion during the period under review. The central bank, however, did not disclose the names of the banks, as doing so may be misleading and negatively impact the financial market.

The theoretical framework of the climate stress test assumes that climate shock would slow GDP growth through physical and transition risks. The first one is defined as domestic physical hazards from extreme natural events like river and coastal floods and cyclones and gradual changes in climate like decline in agricultural yields or water availability, sea-level rise, etc. Physical risks generally hit real estate and infrastructure, business continuity, people, food systems, international trade channels and supply chains. The last one originated from government policies and technological changes like carbon tax and renewable energy.

Due to a decline in GDP growth and the slowdown in economic activities, banks are likely to face increased credit risk as businesses and households are exposed to macroeconomic shock. The ultimate result is that banks incur higher loan losses. So, the study first tries to estimate the link between the GDP growth rate and the credit risk of banks. To do so, the researchers applied econometric-based satellite models. Then, they analyse projected GDP under various climate scenarios and the impacts of multiple risks on banks' balance sheets.

Network for Greening the Financial System (NGFS) outlines various climate scenarios, such as Net Zero 2050 and below 2°C. The first one assumes strict climate policies and innovations that limit global warming to 1.5°C, and by 2050, the global net-zero CO2 emissions will be achieved. The second one assumes a gradual increase in the intensity of climate policies, giving a 67 per cent chance of limiting global warming to below 2°C. The central bank study team has to go through a hectic technical exercise to determine how banks would be affected under various climatic situations as outlined in the scenarios.

The study's core finding is that higher damage scenarios would consistently lead to greater loan loss, indicating significant vulnerability to climate-induced GDP shocks. The study also underscores the urgent need for immediate climate action to minimise any plausible loss. The study projected the outcomes over ten years, from 2025 to 2035.

The study measures the possible loan loss due to negative impact on climate change as a Loan Loss Reserve (LLR). The estimated LLR is calculated by "aggregating loan loss reserves against each bank's non-performing and performing exposures utilising tailored capital engines." LLR is basically an income statement expense set aside as an allowance for uncollected loans and loan payments. It is used to cover various kinds of loan losses such as non-performing loans (NPL), customer bankruptcy, and renegotiated loans that incur lower-than-previously-estimated payments.

Leaving the technical aspects of the study aside, it can be said that the country's banks are gradually becoming vulnerable to climate change, and the banking sector in its totality may face a significant surge in default loans. Total default loans in the banking sector stood at Tk 3457.65 billion at the end of 2024 from Tk 1,456.33 billion at the end of 2023. In other words, climate-related vulnerability in the banking sector will enhance in the comings days. So, policymakers and different stakeholders need to pay attention in this regard. The central bank should also organise a public dissemination session decoding and explain the findings of the study.​

 

[Saif]

Any bank, nonbank can go under state ownership temporarily

Any scheduled bank or financial institution, including troubled Islamic banks, may go under government ownership for bringing stability in the noncompliant commercial lenders under a latest reform panacea. In the process of streamlining, officials say, the central bank can temporarily take over co

thefinancialexpress.com.bd

Problem-shooting bank mergers, acquisitions
Any bank, nonbank can go under state ownership temporarily
New ordinance empowers BB for such action to straighten non-compliant lenders

FE Report
Published :
May 12, 2025 00:05
Updated :
May 12, 2025 00:05

Any scheduled bank or financial institution, including troubled Islamic banks, may go under government ownership for bringing stability in the noncompliant commercial lenders under a latest reform panacea.

In the process of streamlining, officials say, the central bank can temporarily take over control of any such bank or nonbank.

For this, the Bangladesh Bank as the regulator can issue an order transferring one or more shares and the recipient of shares must be a government-owned entity, according to provision of the bank Resolution Ordinance published in official gazette on Friday.

The ordinance had earlier received approval from the Advisory Council of the interim government on April 17.

Simultaneously, the ordinance also vests authority in the banking regulator to hold bank high-ups, like managing directors, chairman, and other responsible officers, personally liable for "fraudulent" use of a bank's funds.

These individuals will be forced to repay the fraudulently used or misused assets or funds to the respective bank. Failure to do so will result in legal action initiated by the bank concerned against the responsible parties, it says.

The draft law says if the owner of a bank directly or indirectly misuses the bank's assets for personal gains or resorts to fraud, the BB reserves the right to initiate resolution proceedings against that bank.

"If necessary, the regulator can appoint an administrator in the bank temporarily, reinvest capital, transfer assets and shares to a third party, and suspend operations partially or completely of the bank," the ordinance states.

"Resolution" is defined in the ordinance that encompasses the power to take any form of action against the bank in question.

The ordinance also outlines circumstances under which the central bank can intervene in the interest of a bank's betterment, if the regulator deems a bank no longer viable or unlikely to become viable, bankrupt or nearing bankruptcy, unable to meet depositor obligations, or having created a situation of financial distress.

Consequently, the Bangladesh Bank will establish a dedicated department to handle these matters, as stated in the ordinance.

There is also a provision in the ordinance for the formation of one or more bridge banks to ensure effective management of the weaker banks.

These bridge banks can subsequently be sold to third parties. Bangladesh Bank retains the authority to suspend or prohibit all business activities of a weak bank. A bridge bank is defined as a temporary entity formed by the central bank to manage the operations of a weak or bankrupt bank.

The ordinance mandates the formation of a seven-member inter-institutional body known as the Banking Sector Crisis Management Council, led by the BB governor. And this council will be responsible for formulating crisis-management strategies and contingency plans.

Other members of the high-profile body are the finance secretary, the secretary of the financial institutions division (FID), the chairman of the Bangladesh Securities and Exchange Commission (BSEC), the secretary of Legislative and Parliamentary Affairs, the deputy governor who takes care of resolutions affairs, and another deputy governor nominated by the governor.

The ordinance specifies that upon the cancellation of a bank licence, the BB will submit a petition to the court for starting its liquidation.

The court will then appoint a liquidator nominated by the Bangladesh Bank. "Once the liquidation order takes effect, no interest or other charges will accrue to the bank's liabilities."

In addition, a bank can also undergo voluntary liquidation, but it cannot cease operations without prior authorisation from the BB.

Deposits must be repaid within seven working days of the licence- revocation decision taking effect, and other liabilities must be settled within two months.

In addition, a provision has been made for slapping a financial penalty of up to Tk 500,000 and an additional penalty of Tk 5,000 for each day of violation of the ordinance.​

 

[Saif]

Empowering central bank with sweeping powers

One of the reasons why the nexus of corrupt politics and its crony oligarchs could get away with plundering the banking sector during the autocracy was the powerlessness of the Bangladesh Bank (BB) to stop it. Obviously, the interim government under the dispensation of post-July uprising realised t

thefinancialexpress.com.bd

Empowering central bank with sweeping powers
Published :
May 14, 2025 00:07
Updated :
May 14, 2025 00:07

One of the reasons why the nexus of corrupt politics and its crony oligarchs could get away with plundering the banking sector during the autocracy was the powerlessness of the Bangladesh Bank (BB) to stop it. Obviously, the interim government under the dispensation of post-July uprising realised the urgency of equipping the BB with the necessary legal tools so it could exercise its authority to rescue the fragile banking sector by way of taking actions against non-compliant/sick banks to protect depositors and borrowers. As chronic fragility of the banking sector has caused significant erosion in the public's as well as the investors' trust in the banking system, the financial institutions division under the finance ministry in February this year published the draft law titled the Bank Resolution Ordinance, 2025 granting the BB sweeping powers to do what was necessary to save the banking sector plagued by various malpractices including scams, poor governance, weak compliance, heists and ever-rising volume of the non-performing loans (NPLs).

The government through a gazette notification on Friday, May 9 last published the ordinance under which a troubled bank could be restructured or liquidated in a way that the process minimizes the failing bank's impact on the depositors, other banks and the broader economy. Undeniably, it is a landmark step by the government towards restoring discipline in the financial, or for that matter in the banking sector. Thus, the Bank Resolution Ordinance is endowed with broad powers to intervene in case any of the banks or financial institutions, state-owned or private, or foreign, found compromised. The BB would then take steps to dissolve a struggling bank appoint temporary administrator, transfer its assets to another state-owned entity, the so-called bridge bank. The bridge bank, on its part, is a special type of bank authorised to take over and operate a failing bank for a limited period of time. In fact, it acts as a bridge allowing time for a potential buyer to be found or explore other resolution options. Also, another function of the bridge bank is to act as an isolator so as to isolate the distressed bank from the broader banking sector to prevent panic withdrawal by depositors.

The whole purpose of a bridge bank, therefore, is that the clients of a struggling bank can continue to access, for instance, their deposits or get other financial services seamlessly. Now, the BB will also be able to raise capital through new or existing shareholders to strengthen financial position of a distressed bank. Evidently, a fund, styled, 'Bank Restructuring and Resolution Fund' will be created through government contributions, international financial institutions, risk-based levies on banks and so on. However, in case, the struggling bank fails to meet capital or liquidity requirements or its owners engage in fraudulent practice, the BB will have the power to take corrective measures as necessary.

Now, as designed, the BB has its powers to clean up the mess in the banking sector created over the decades, especially during past one and a half decades of autocracy. But it is one thing to have power, quite another to exercise it. The question arises because, the country had never any dearth of laws. But what it was wanting in was their execution. Hopefully, this time the banking sector regulator will show its teeth, if and when needed.​

 

[Saif]

Cenbank governor says market to set dollar rate

Bangladesh will allow the market to determine the dollar exchange rate, the central bank said on Wednesday. "I hope the new rate will remain around the current level," Bangladesh Bank Governor Ahsan H Mansur told reporters via video link from Dubai during a press briefing organised by the central

thefinancialexpress.com.bd

Cenbank governor says market to set dollar rate
FE ONLINE DESK
Published :
May 14, 2025 16:39
Updated :
May 14, 2025 16:39

Bangladesh Bank Governor Dr Ahsan H Mansur -- File Photo

Bangladesh will allow the market to determine the dollar exchange rate, the central bank said on Wednesday.

"I hope the new rate will remain around the current level," Bangladesh Bank Governor Ahsan H Mansur told reporters via video link from Dubai during a press briefing organised by the central bank.

The move follows months of negotiations with the IMF, which had pushed for a market-based exchange rate as a condition for disbursing loan instalments under a $4.7 billion support programme agreed last year.

The IMF had held back loan tranches over concerns about exchange rate controls.

On Tuesday, Bangladeshi authorities agreed to liberalise the system, prompting the global lender to approve the release of two pending instalments, central bank officials said.

Speaking at the briefing, Mansur said the country expects to receive the delayed fourth and fifth tranches of the IMF loan by June.​

 

[Saif]

Data-driven lending solution for Bangladeshi banks

The process of securing a loan from most banks and non-bank financial institutions (NBFIs) feels like a maze.

www.thedailystar.net

Data-driven lending solution for Bangladeshi banks

File photo: REUTERS

In Bangladesh, the process of securing a loan from most banks and non-bank financial institutions (NBFIs) feels like a maze. A small business owner walks in with a mountain of paperwork, a salaried professional submits their home loan application with fingers crossed, and a credit officer begins the tedious task of checking documents and preparing loan appraisal reports. This cycle plays out day after day, with loan decisions made based on outdated risk management practices. Weeks, even months, pass, only for many of these hopeful applicants to face rejection, not because they lack potential, but because the system never truly understood their financial story.

This situation is the silent crisis of our banking system. In a country where the middle class is expanding and millions of small businesses drive the economy, the financial system still struggles to meet their needs. Why? Because credit risk management has not evolved with the times. But there is a solution, and it lies in reimagining the way we assess risk through the lens of data.

Bangladesh is a country of 170 million people. One in four now belongs to the middle class, and that number is growing thanks to rapid urbanisation and digital adoption. This upward shift is opening up big opportunities, especially in retail banking.

Meanwhile, around 10 million CMSMEs (cottage, micro, small, and medium enterprises) comprise 90 percent of industrial units and account for 80 percent of industrial employment. Despite their vital significance, access to finance remains limited simply because they don't have formal documentation, collateral, or traditional credit histories.

This is not a capacity problem. It is a visibility problem. And that is where data-based risk management can change everything.

Data-driven credit analytics offers a powerful alternative to the old way of credit risk management. Instead of relying on a rigid set of forms and a credit officer's intuition, financial institutions can use machine learning, an algorithm trained on years of data from past borrowers, to evaluate the creditworthiness of a potential borrower. This model does not just look at income or collateral; it captures patterns in mobile transaction records, utility bill payments, digital wallet activity, geo-location data and other alternative indicators to assess how a borrower earns, spends, and saves. For CMSMEs, it means analysing business turnover, supplier relationships, cash flow position, and other relevant data points. Within minutes, a machine learning model assigns a credit score rooted in actual outcomes, not outdated assumptions.

The need for smarter risk assessment has never been more urgent. As of December 2024, non-performing loans (NPLs) in Bangladesh reached an all-time high of 20.2 percent of total outstanding loans. The banking sector remains fixated on a small number of large classified loans while overlooking thousands of creditworthy individuals and small businesses. As Bangladesh aims to rebuild its banking system, leveraging data analytics is pivotal for its banking sector to remain competitive and resilient.

One of the greatest advantages of data-driven risk management appears in the post-disbursement phase. In a traditional risk management approach, financial institutions only learn about borrower distress after it is too late, when a payment is missed or a default occurs. By then, recovery becomes costly and complicated. On the contrary, real-time data analytics allows for proactive monitoring. If a borrower's transaction volume drops or their repayment behaviour changes, analytics systems can flag the risk immediately. Financial institutions can step in early with a reminder and the right recovery plan.

Historically, banks and NBFIs avoided small loans because of the high cost of customer acquisition and supervision. But digital technology is flipping that logic on its head. With the right data infrastructure, financial institutions can automate most of the credit lifecycle: from application to approval to monitoring. This reduces operating costs and makes small-ticket retail and SME lending not just viable, but profitable.

Beyond traditional financial product offerings, data analytics is also opening doors to embedded finance, a model where credit is offered directly through platforms people already use. Think of a ride-hailing driver getting a loan from the app they work for. Or an online seller receiving instant credit based on their digital sales history. According to a report published by ResearchAndMarkets.com, embedded finance is projected to grow at a 48 percent annual rate from 2024 to 2029, with revenues expected to hit $5.8 billion. However, to tap into this opportunity, financial institutions need to shift from product-based offerings to ecosystem-based thinking. That means building APIs, investing in cloud-based infrastructure, and most importantly, using data as the foundation of all credit decisions.

The good news is that the transition to data-based risk management doesn't require a complete overhaul. Most banks already have years of valuable data sitting in their systems. Building a scorecard model using that data to predict default risk is both doable and cost-effective. Integrating modern loan origination systems (LOS) with existing core banking platforms is a proven path. What is needed now is a mindset shift: from fearing risk to understanding it, from gatekeeping to enabling and from guesswork to insight.

Several forward-thinking banks and NBFIs in Bangladesh have already taken this step. By integrating a robust LOS with their legacy core banking platforms, they have successfully adopted data-driven risk management systems. These institutions are thriving, benefiting from faster loan processing, more accurate credit assessments, and reduced default rates.

Imagine a Bangladesh where a woman running a home-based clothing business can get a small loan based on her online sales, where a local grocer in Bogura is evaluated not by collateral but by years of consistent supplier payments and sales turnover, and where a ready-made garment worker can access an affordable home loan to construct a semi-pucca building on the outskirts of Dhaka, in Savar. That future is not far off. It is waiting at the edge of data and the financial institutions willing to harness it.

Financial institutions that lead this shift will not only find new markets and revenue streams. Surely, they'll build something far more valuable: trust, inclusion, and long-term resilience. The future of credit risk management is not about rejecting loans. It is about knowing who to trust and letting data tell the story.

Shah Jalal is a risk management professional working at a non-bank financial institution.​