[🇧🇩] Banking System in Bangladesh

[Saif]

Digital bank: The missed bus to the future

If digital banking were a cricket match, Bangladesh would still be warming up while Kenya and Ghana are already batting in the Super Over. The idea is simple: if a country wants to take banking to the unbanked, it must go where the unbanked actually live, outside traditional banking halls, far...

www.thedailystar.net

Digital bank: The missed bus to the future

If digital banking were a cricket match, Bangladesh would still be warming up while Kenya and Ghana are already batting in the Super Over. The idea is simple: if a country wants to take banking to the unbanked, it must go where the unbanked actually live, outside traditional banking halls, far away from the marble floors and token queues. Most African nations figured this out early.

Kenya allowed both banks and telecom operators to operate mobile money services. Today, M-Pesa handles transactions worth over 50 percent of Kenya's GDP. Nigeria opened its doors to Payment Service Banks, where telecoms and fintechs coexist. Even India, our giant next door, has over 300 million digital bank accounts thanks to a liberal ecosystem where banks, telcos, fintechs, and government platforms compete, collaborate, and irritate each other into innovation.

Bangladesh, meanwhile, is debating who should be allowed to innovate. On paper, we have the ambition to obtain a Digital Bank licence to expand financial inclusion. In reality, we tend to design policies around preferred players. During the previous regime, the digital bank initiative essentially circled around one player, Nagad, while bKash, the country's largest MFS provider with millions of users, was mysteriously sidelined. The process was so opaque that even Faluda would need a Freedom of Information request.

Today, as Bangladesh Bank reopens the process, experts suspect déjà vu. The intention appears tilted toward bKash. Do not get me wrong, bKash absolutely deserves a Digital Bank licence. Their scale, governance, and track record speak for themselves. But if the goal is national financial inclusion, then the question should not be "Who is our favourite child?" but rather "How big is the family we want to build?"

And this is where telecom operators and other big players with similar capacity come in. Globally, every successful digital banking model rests on two pillars, connectivity and distribution reach. Telcos own both. They have the SIMs, towers, agents, and customer relationships that no bank, digital or otherwise, can match cost-effectively. In Kenya, Safaricom did not just support digital banking; it became digital banking. In Pakistan, JazzCash, backed by a telecom operator, serves nearly 40 million users. Even India's Airtel Payments Bank has over 40 million monthly transacting users.

Bangladesh, ironically, has three telecom operators, and they have been politely kept outside the MFS and digital banking sandbox for a decade. Meanwhile, our MFS pricing remains among the highest in the region. For instance, Bangladesh's cash out fees hover around 1.85 percent to 2 percent, compared to Pakistan's 0.5 percent to 1 percent, India's 0.65 percent, and Kenya's tiered rates that are significantly lower for small value transactions. Competition is not just good economics; it saves crores for the poor.

There is also the matter of deep pockets. Running a digital bank is not like launching an app, it is like building the Padma Bridge with a better user experience. You need capital, technology, risk management, cybersecurity, and the stamina to navigate regulatory paperwork that can outlive governments. Telcos and established MFS players have both the money and the muscles.

So here is the policy question that matters. Do we want a digital bank landscape that mimics our telecom duopoly, our political duopoly, and our cricket selection committee, or do we want real competition? If Bangladesh truly wants inclusion, transparency, and lower costs for citizens, the digital banking licence must be open to all credible players, banks, fintechs, and yes, telecom operators.

Otherwise, we risk ending up with the same old wine in a slightly shinier bottle, sold at a slightly higher cash-out fee.

The writer is the president of the Institute of Cost and Management Accountants of Bangladesh and founder of BuildCon Consultancies Ltd​

 

[Saif]

newagebd.net/post/Banking/283616/merged-bank-to-be-launched-this-week-says-bangladesh-bank-governor

Merged bank to be launched this week, says Bangladesh Bank governor
Staff Correspondent 29 November, 2025, 13:43

BB governor Ahsan H Mansur speaking at the 4th Bangladesh Economic Summit held on Saturday. | Focus bangla photo

The new state-run Shariah bank, which will be formed through the merger of five crisis hit Islamic banks, will be officially launched next week, according to Bangladesh Bank governor Ahsan H Mansur.

He made the announcement at the 4th Bangladesh Economic Summit held in the capital on Saturday.

The bank will start with paid-up capital of Tk 35,000 crore, the highest ever for any bank in the country.

The governor said that the new entity is being created under the Bank Resolution Ordinance, which the central bank is using for the first time to restructure weak banks.

The five banks to be merged into single entity were First Security Islami Bank, Union Bank, Global Islami Bank, Social Islami Bank and Exim Bank, all of which have faced prolonged liquidity stress, governance failures and rising defaults.

Of the Tk 35,000 crore capital base, the government will provide Tk 20,000 crore. The remaining funds will come from the assets and equity of the five institutions being merged.

The central bank earlier granted a letter of intent for the new lender, to be named Sammilito Islami Bank PLC. The government has already nominated Nazma Mobarek, secretary of the Financial Institutions Division, as chair of the board.

Mansur said the goal is to convert five weak banks into a single stable bank backed by strong capital support and tighter oversight.

Since the interim government took office, Bangladesh Bank has injected about Tk 35,300 crore in liquidity support to keep these lenders afloat. He said that the merger offers a path to end repeated bailouts and restore discipline to a segment of the banking sector that has long remained vulnerable.

He acknowledged that the broader industry faces deep structural problems, including non-performing loans that he estimated at 35 per cent, far above the earlier official figures.

Mansur said that resolving bad loans could take five to ten years and warned that both banks and non-bank financial institutions showing sustained deterioration will face strict action.

Nine non-bank financial institutions are set to be liquidated under the new ordinance.

He said that inflation is 8.20 per cent, and if it falls below this or into the 7 per cent range, the policy rate will be reduced.

Mansur added that essential goods for Ramadan will not face import or supply disruptions, as banks have already opened the required letters of credit.​

 

[Saif]

BB board clears winding up of nine non-banks

The Bangladesh Bank is moving to wind up nine ailing non-bank financial institutions as its board has approved their liquidation under the newly framed Bank Resolution Ordinance 2025, the country’s first comprehensive framework for resolving failing banks and non-banks.

www.thedailystar.net

BB board clears winding up of nine non-banks

Governor says govt verbally approved Tk 5,000cr to pay depositors; Sammilito Islami Bank gets licence.

The Bangladesh Bank is moving to wind up nine ailing non-bank financial institutions as its board has approved their liquidation under the newly framed Bank Resolution Ordinance 2025, the country's first comprehensive framework for resolving failing banks and non-banks.

The ordinance sets out how distressed institutions may be merged, restructured or closed, and establishes the hierarchy for repaying creditors once assets are sold.

The BB board, chaired by Governor Ahsan H Mansur, granted the approval yesterday, clearing the way for the regulator to formally shut the institutions, appoint liquidators, sell their assets and distribute the proceeds to claimants, a senior central bank official confirmed on condition of anonymity.

The move coincides with another major clean-up operation in the financial sector -- the merger of five troubled shariah-based banks. The BB board also licensed the newly merged Sammilito Islami Bank, marking the largest bank consolidation in the country's history. It is to be the largest Islamic bank in the country now.

Officials say the NBFI liquidations, alongside the bank merger, reflect the regulator's shift towards aggressive intervention after years of deterioration across the financial system.

The nine selected NBFIs are FAS Finance, Bangladesh Industrial Finance Company, Premier Leasing, Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, People's Leasing, and International Leasing.

Together, they accounted for 52 percent of total defaulted loans in the NBFI industry, which stood at Tk 25,089 crore at the end of last year, reflecting years of unchecked lending irregularities and erosion of capital.

Seven of the eight NBFIs have an average net asset value of negative Tk 95 per share, leaving little prospect of meeting obligations without state intervention. In other words, when the companies' assets are sold off and debts cleared, there will be nothing, or far too little, left for ordinary shareholders.

DEPOSITORS TO BE PRIORITISED

The BB board's approval comes as the institutions are failing to pay back depositors, many of whom have been waiting months, in some cases years, despite their schemes maturing.

Earlier on Saturday, responding to a query from The Daily Star, Governor Mansur said BB would appoint liquidators "soon".

He also confirmed that depositors would be paid before liquidation proceeds, saying, "The government has already verbally approved around Tk 5,000 crore to repay depositors of these NBFIs."

Mansur said they are moving forward with the liquidation of the companies only to protect depositors. "Returning the deposits of the NBFI customers is our top priority," he said.

For depositors, the collapse of these NBFIs has been devastating. Irregularities in lending, including loans to related parties, poor recovery practices and unchecked concentration of credit, left the institutions unable to meet obligations. As a result, customers' savings remain blocked despite matured schemes.

Khalil Ahmed Khan, a 64-year-old depositor of Aviva Finance, is among those affected. His Tk 23 lakh deposit matured in January, but he has so far received only Tk 8.98 lakh. He met with the top officials at the NBFI but all his attempts have turned futile.

A patient with high blood pressure and diabetes, he said the long delay has made it difficult to pay for treatment. "I need the money urgently to pay my dues and bear the cost of treatment."

BB data shows Tk 15,370 crore in deposits, belonging to both individuals and institutions, remain locked in the nine NBFIs. Of this, Tk 3,525 crore belongs to individuals and Tk 11,845 crore to banks and corporate depositors.

People's Leasing holds the largest volume of unreleased individual deposits at Tk 1,405 crore, followed by Aviva Finance with Tk 809 crore, International Leasing Tk 645 crore, Prime Finance Tk 328 crore and FAS Finance Tk 105 crore.

Industry insiders say the problems in the NBFI sector have deep roots. Unlike banks, non-banks were not subject to equally rigorous supervision, allowing scams and governance failures to accumulate over the years.

Several institutions continued reporting inflated assets and understated losses, masking their worsening condition until the impact became impossible to contain.

Earlier this year, the central bank's Financial Institutions Department shortlisted the nine NBFIs for closure and sent the names to the Bank Resolution Department. The decision followed an assessment 10 months ago, when BB identified 20 NBFIs with critically weak financial health, including high defaulted loans and depleted capital, and placed them in the "red" category.

The remaining 11 NBFIs are: CVC Finance, Bay Leasing, Islamic Finance, Meridian Finance, Hajj Finance, National Finance, IIDFC, Uttara Finance, Phoenix Finance, First Finance and Union Capital.

The BB has asked them to present viable recovery strategies.​

 

[Saif]

Independent central bank: ideal vs illusion

This article is inspired by recent discourses and insightful commentaries across the print media on the “Need for an Independent Central Bank (ICB).” Few would contest their arguments that political dominance over the Bangladesh Bank (BB) has undermined monetary discipline, distorted cr

thefinancialexpress.com.bd

Independent central bank: ideal vs illusion
Abdullah A Dewan

Published :
Dec 01, 2025 23:41
Updated :
Dec 01, 2025 23:41

Head quarters of Bangladesh Bank, the central bank of Bangladesh, in Dhaka —FE File Photo

This article is inspired by recent discourses and insightful commentaries across the print media on the “Need for an Independent Central Bank (ICB).” Few would contest their arguments that political dominance over the Bangladesh Bank (BB) has undermined monetary discipline, distorted credit allocation, fueled inflationary pressures, and, most damagingly, led to foreign exchange mismanagement. Yet none of these commentaries have probed the deeper question: what does independence truly mean—and are the world’s so-called “independent” central banks really the models we imagine them to be?

The European Example—Not Quite What It Seems: Promoters of ICB almost always cite the Federal Reserve, the Bank of England, and “all central banks of the European Union” as paragons of independence, prohibited from financing Treasury deficits. Formally, that is true: Article 123 of the Treaty on the Functioning of the European Union forbids direct purchase of government debt. But reality long ago outpaced principle. During the euro-debt crisis, the European Central Bank (ECB) launched a succession of bond-buying programs—the Securities Markets Programme, Outright Monetary Transactions, and later, Quantitative Easing and the Pandemic Emergency Purchase Programme. These initiatives indirectly financed governments through secondary markets, lowering borrowing costs and expanding the money supply—legally clever but economically equivalent to direct financing.

Likewise, during the pandemic, the Federal Reserve reopened and expanded its dollar swap-line arrangements with major central banks, including the ECB, to ease global funding stress. Through this facility, the ECB temporarily drew U.S. dollars from the Fed and on-lent them to euro-area banks. Its borrowing peaked at about $140–$150 billion—well below the roughly $449 billion global total that included the Bank of Japan. These short-term liquidity swaps—not conventional loans—were fully repaid as financial conditions stabilised later that year.

This episode also underscored how interdependent ICBs have become. Even as the ECB formally adheres to Article 123 of the EU Treaty, its reliance on the Federal Reserve’s dollar liquidity revealed the practical limits of monetary sovereignty. Nor are all EU central banks bound by Article 123. Seven members—Sweden, Denmark, Poland, the Czech Republic, Hungary, Romania, and Bulgaria—retain their own currencies and domestic monetary authority. Their “independence” exists by statute yet remains politically intertwined; Sweden’s Riksbank, for instance, coordinates closely with its finance ministry. Thus, Europe’s experience reflects delegated autonomy within negotiated political limits. Even the ECB’s Executive Board is appointed through intergovernmental consensus and remains accountable to the European Parliament. Independence, then, is conditional, not absolute.

Bangladesh’s Challenge — Legal Independence, Political Intrusion: A central bank cannot be sovereign above the state. It must be shielded from political whim yet answerable to democratic oversight. The world’s strongest institutions balance these two forces through transparency and accountability. The US Federal Reserve’s governors serve 14 years long, staggered terms and operate on self-financing revenues, but the Chair must testify before Congress twice a year. The Bank of England gained operational independence in 1997, yet its inflation targets and metrics are set annually by the Chancellor’s remit. These models show that independence is a negotiated trust—not unbounded freedom.

On paper, BB already enjoys autonomy under the Bangladesh Bank Order of 1972. It designs monetary policy, manages exchange-rate operations, and regulates banks. In practice, it remains hostage to fiscal dominance and political patronage. Successive governments have used the BB to monetize deficits, reschedule bad loans, and rescue politically connected borrowers. When the regulator becomes a rescuer, monetary policy turns into fiscal policy by stealth. The flaw lies not in law but in governance.

In truth, on matters of monetary and macroeconomic policy, as well as data interpretation and analytical expertise, BB has never been qualified for genuine independence. Its institutional culture remains bureaucratic rather than technocratic; promotions reward compliance over competence. Except for the present governor, senior executives with doctoral training or research experience in macroeconomics, financial modelling, or international monetary systems are few and far between. Policy decisions are typically reactive, driven by circulars rather than analytical forecasts. Even internal publications avoid critical assessments that might contradict ministerial narratives. This intellectual deficit leaves the institution dependent—not on law, but on permission. A bank so habituated to subservience cannot transform overnight into an independent authority.

For genuine independence, reforms must ensure:

• Appointment transparency—governors and board members confirmed by Parliament, not by executive decree.

• Budgetary autonomy—financing operations without annual approval from the Finance Division.

• Mandatory reporting—quarterly updates to Parliament on inflation, liquidity, and credit.

• Term security—dismissal only for defined misconduct, never for policy disagreement.

Without such safeguards, independence remains ceremonial — word in law but a ghost in practice.

The Myth of Technocratic Perfection: The global gospel of central bank independence rests on the assumption that insulated technocrats will always act in the public interest. History warns otherwise. The 2008 financial crisis erupted under some of the world’s most independent central banks, the Federal Reserve, ECB, and Bank of England. Their autonomy did not prevent asset bubbles or reckless financial innovation; it may even have delayed corrective action. Economists such as Stiglitz, Blanchard, and Buiter have cautioned that absolute independence can turn central banks into ideological fortresses—fixated on inflation while ignoring jobs and growth. For developing economies like Bangladesh, where employment and investment are as vital as price stability, a dual-mandate model like the U.S. Federal Reserve’s may serve better than narrow inflation targeting.

Inflation Control Needs Coordination, Not Isolation: Some op-eds correctly identify excessive liquidity during FY2020–23 as a key driver of inflation. Yet Bangladesh’s inflation also stems from structural bottlenecks—energy shortages, import constraints, and supply-side weaknesses. Monetary tightening alone cannot cure these. Fiscal prudence, credible data, and coordinated supply management must complement central bank policy. An “independent” central bank working within policy incoherence will still fail—just as the ECB struggled when eurozone fiscal policies diverged. Autonomy must coexist with coherence.

The deeper challenge lies in distinguishing demand-pull from supply-push inflation. Demand-pull inflation occurs when consumer and business spending outpaces production capacity, making higher interest rates an appropriate corrective to cool demand. Supply-push inflation, by contrast, stems from cost shocks—rising fuel, food, or import prices—that compress output and purchasing power simultaneously. In such episodes, raising rates can aggravate the problem: investment contracts, unemployment rises, and yet prices remain stubbornly high. The policy dilemma, therefore, is not merely technical but diagnostic—identifying which inflation one is fighting before pulling the trigger.

Understanding and diagnosing the sources of inflation, recession, and growth require deep analytical expertise in macroeconomics, monetary theory, and data interpretation. Bangladesh Bank, given its current capacity, would need years—perhaps a decade—to cultivate such institutional competence. Until then, its policy responses are likely to remain reactive rather than anticipatory, constrained by limited research depth and an absence of high-calibre economists trained to distinguish between cyclical trends and structural shocks.

Lessons from Europe: Europe’s crisis decade offers three relevant lessons:

1. Rules must flex in crises. The ECB bent its own no-financing rule to preserve the euro. Bangladesh Bank will need similar discretion in emergencies.

2. Credibility matters more than law. Independence is sustained by transparency, not by decree. Bangladesh Bank’s credibility has eroded from data opacity and delayed responses; rebuilding trust is paramount.

3. Coordination trumps isolation. In a remittance- and export-dependent economy, monetary policy must align with fiscal and external-sector strategies.

Toward Genuine Autonomy: For independence to be meaningful, Bangladesh needs a Central Bank Reform Act anchored on three pillars:

1. Legal insulation. prohibit deficit financing; fix leadership terms.

2. Professional capacity. strengthen analytical divisions, recruit economists and financial engineers, empower research units to speak without censorship.

3. Public accountability. publish minutes of policy meetings; report to Parliament, not ministries.

Question: Does BB’s research and statistics departments have trained economists and modern data systems needed to model shocks, forecast inflation, or interpret trends? Without credible data and professional analysis, autonomy becomes blindness. Independence without intelligence is as perilous as dependence without discipline.

BB’s path to genuine autonomy will not begin with a new statute but with a new creed. It demands leadership by world-class, research-trained economists—professionals adept at interpreting data and versed across macroeconomics, monetary policy, international trade, and finance. More than credentials, they must possess the moral courage to say “no”—to ministers, to cronies, and to populist temptations that threaten policy integrity. For in the final reckoning, the only currency that never loses value is public trust.

Dr Abdullah A. Dewan, Professor Emeritus of Economics, Eastern Michigan University (USA),

Former Physicist and Nuclear Engineer, Bangladesh Atomic Energy Commission.

Caption:

Head quarters of Bangladesh Bank, the central bank of Bangladesh, in Dhaka —FE File Photo​

 

[Saif]

Addressing the rising NPL crisis

The banking sector in Bangladesh is currently grappling with a critical challenge that poses a significant threat to its stability and future growth: the alarming rise in Non-Performing Loans (NPLs). The factors contributing to this crisis are complex and multifaceted, and it is essential to confro

thefinancialexpress.com.bd

Addressing the rising NPL crisis
Md Touhidul Alam Khan

Published :
Dec 02, 2025 22:14
Updated :
Dec 02, 2025 22:14

The banking sector in Bangladesh is currently grappling with a critical challenge that poses a significant threat to its stability and future growth: the alarming rise in Non-Performing Loans (NPLs). The factors contributing to this crisis are complex and multifaceted, and it is essential to confront these issues proactively to safeguard both the financial institutions and the broader economy.

At the core of the escalating NPL issue is a weak credit risk assessment process. In many instances, loans are approved without thorough evaluations of borrowers' capacities or the viability of their projects. This lack of diligent scrutiny significantly compromises lending integrity, raising concerns about the sustainability of projects being financed and the banks' responsibilities to their stakeholders. As economic resilience becomes increasingly vital, it is imperative that banks implement rigorous standards for credit evaluation to prevent avoidable defaults.

Additionally, political influences in lending decisions cannot be ignored. The practice of directed lending-where loans are awarded based on personal connections rather than merit-creates an accommodating environment for inefficiency and higher risk. Borrowers who obtain funds through such means often feel less accountable contributing to raise in default rates. This trend not only undermines public trust in financial institutions but also erodes the principles of fairness and responsibility on which these institutions are built.

Compounding the problem is the slow legal recovery process in the judicial system, particularly within the specialised financial courts. Lengthy legal proceedings enable defaulters to exploit delays, thereby hampering banks' recovery efforts. An efficient judicial system should facilitate timely loan recoveries, yet existing inefficiencies disincentivise prompt repayments and foster a culture where rescheduling or writing off loans is normalised. While these practices may temporarily reduce reported NPL figures, they create a false sense of security that ultimately exacerbates long-term risks.

Weak corporate governance within banks further intensifies the NPL crisis. Inadequate oversight regarding loan approvals allows for irregular lending practices, enabling unnecessary risks to flourish within the sector. Moreover, concentrating significant loans among a select group of borrowers increases vulnerability; when these borrowers default, the repercussions can destabilise not only the institution in question but the economy as a whole.

Despite the establishment of committees aimed at tackling the NPL issue, their impact has been limited. While recommendations may be made, the lack of enforcement power often leads to limited genuine progress. Addressing this crisis requires more than discussions; it demands structural reforms that can tackle the root causes of NPLs. Constructive dialogue is essential, but without actionable steps and a commitment to reform, such efforts may dissipate into mere rhetoric.

Given these challenges, the question arises: can Bangladesh realistically adopt international best practices to manage its NPL crisis? While there is potential for progress, several obstacles remain. Regulatory frameworks are improving but have not yet reached international standards. The inefficiencies within the judicial system continue to hinder timely loan recoveries, while political interference obstructs the implementation of stricter global lending practices. These issues call for urgent attention from policymakers, regulators, and banking authorities who must collaborate to strengthen institutional frameworks and enhance compliance.

To pave the way for effective reform, the government must prioritize initiatives that address the inefficiencies ingrained in our legal and banking systems. Streamlining legal processes for expediting loan recoveries will restore confidence among banks and borrowers alike. Reducing political meddling in the lending process will further reinforce credit operations' integrity, ensuring that financial decisions are based on objective criteria rather than personal connections.

A forensic audit is a critical tool that can significantly aid in pinpointing key individuals responsible for the alarming rates of loan defaults. By systematically investigating the factors that contribute to these defaults, forensic audits can uncover the underlying reasons, providing invaluable insights into the incompetencies or misconduct involved. It is essential that forensic auditing be institutionalised across all banks, guided by the stringent prudence required by the Bangladesh Bank, particularly amidst the ongoing reforms within the banking sector. This proactive approach will not only clarify who is accountable and the rationale behind the financial mismanagement but will also gather substantial evidence to support any necessary legal actions. By adopting such measures, we can foster a culture of accountability and transparency, ultimately restoring confidence in our banking system.

Ultimately, it is crucial to acknowledge that the foundations for adopting international best practices are already present in Bangladesh. However, the necessary institutional capacity to act on these frameworks effectively is still lacking. A concerted commitment to enhancing transparency, employing robust credit evaluation methods, and enforcing sound governance practices will position the banking sector for greater resilience.

In conclusion, the increasing prevalence of NPLs in Bangladesh represents a significant challenge that requires immediate and comprehensive reform. The need for a cohesive and proactive approach to address existing weaknesses within the system is clearer than ever. By fostering an environment of accountability, transparency, and adherence to established standards, Bangladesh can navigate the turbulent waters of financial challenges and strengthen the integrity of its banking sector for the future. The time for action is now-economic stability depends on it.

Dr. Md. Touhidul Alam Khan is Managing Director & CEO of NRBC Bank PLC and a Fellow Cost & Management Accountant from ICMAB.​