[🇧🇩] Banking System in Bangladesh

[Saif]

Bankers cautiously optimistic about a turnaround

Bankers sound cautiously optimistic about a turnaround in the problem-ridden banking sector on right-minded policy support following the change-making polls ahead in the new year. Bangladesh saw so many eventful happenings in the just-past year 2025 but it was the most challenging one for banking

thefinancialexpress.com.bd

Bankers cautiously optimistic about a turnaround
Govt finance rebalancing from bank borrowing into revenue raising suggested

JUBAIR HASAN
Published :

Jan 02, 2026 00:29
Updated :
Jan 02, 2026 00:29

Bankers sound cautiously optimistic about a turnaround in the problem-ridden banking sector on right-minded policy support following the change-making polls ahead in the new year.

Bangladesh saw so many eventful happenings in the just-past year 2025 but it was the most challenging one for banking sector because of multiple factors, including a hangover of mismanagement and misdirected lending under the previous regime.

The adversities include persisting economic slowdown, plummeting private-sector credit flow amid higher-interest regime and panic withdrawal of deposits in a spillover effect from large-scale irregularities in few noncompliant banks that led to regulatory resolution interventions.

As a matter of fact, the commercial banks witnessed their NIM or net interest margin narrowing throughout the year that would prompt many of the bankers to forget the calendar year.

As parliamentary election is knocking at the door, scheduled for February 12 next, bankers have become optimistic about a turnaround in the country's entire economic activities on back of policy predictability and improvement in law-and-order situation.

Managing director and chief executive officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman says the just-passed year was too challenging for banks. "We hope the economy in the post-election period will rebound but the liquidity pressure will remain in the sector."

He predicts the banking sector would see a jump in private-sector- credit demand. If the upward trend in government domestic bank borrowing continues in the coming days, it would create liquidity pressure on banks.

"The government needs to give serious efforts in revenue mobilisation to lessen pressure on banks," the experienced banker says in his suggestion for public-finance rebalancing.

Bangladesh Bank (BB) data show private-sector credits dropped to 6.23 per cent by end of October 2025, the lowest in more than two decades.

In respect of profitability, he says, the net interest margin in banks has been on a slide in recent months for squeezing business avenues amid economic sluggishness. In fact, banks are making some sorts of gains through investment in government securities.


Notwithstanding private-sector-credit push and vibrancy in post-election economy, the banker notes, reforms undertaken by the banking regulator, like amendment to the Bangladesh Bank Order 1972 and the Bank Company Act, have yet to be approved.

"These are very vital on governance purpose," he told The Financial Express.Financial Literacy Course

Managing director and chief executive officer of Pubali Bank PLC Mohammad Ali strikes a high note of optimism about a breakthrough. He says the country would enjoy a significant turnaround in the banking sector this calendar year.

"After the upcoming February election, a political government would take over the economy, which would hopefully create the foundation for political stability. And political stability will help regain confidence of the investors, which will ultimately bring vibrancy in economic activities," he explains his views.

But he alerts that the commercial banks will be required to give serious attention to liquidity management to ensure that the credits flow into productive sectors.

About the possibility of crowding-out effect due to growing government bank borrowing, he says the central bank keeps buying US dollars and in exchange it is injecting liquidity into the market.

"I don't think such thing (crowding-out impact) would arise. I am optimistic that the lending rate would go down below 12 per cent in coming days," he adds.

According to the central bank, the banking regulator, since July 13 last, has purchased a total of $3.14 billion in exchange for around Tk400 billion from the market.


Regarding the NPL buildup, Mr. Ali says the banking sector would see significant drop in the volume or ratio of NPLs because of the various steps once the December-end data of the classified loan are made.

Managing director and chief executive officer of NRBC Bank Dr. Md. Touhidul Alam Khan opines, "As we look towards 2026, the banking sector stands on the brink of a significant transformation, particularly with a new government on the horizons.

"This presents a unique opportunity to reshape the narrative of financial governance. A robust banking system rooted in public trust, guided by competent professionals rather than political connections, is essential for achieving lasting financial stability."

However, establishing political neutrality requires more than just regulatory mandates. It necessitates a fundamental shift in mindset. "Policymakers must recognize the importance of a financially independent banking sector, while bankers must see themselves as stewards of economic integrity."

He has also told the FE correspondent, "In addition, the integration of comprehensive internal audit processes-including a built-in forensic audit system staffed with skilled personnel-and a Risk-Based Supervision (RBS) framework will significantly improve oversight and accountability."

He also suggests adopting an Expected Credit Loss (ECL) model in line with IFRS 9, while ensuring alignment with international banking standards, will further strengthen credibility and confidence in the sector.

Seeking anonymity, the treasury head of a leading private commercial bank says liquidity support matters as the struggling business entities would create some liquidity pressure on banks in the days ahead.


Under the policy support, he says, commercial banks need to give two years of grace period to such businesspeople. It means, the banks will get nothing in the first two years but they have to pay interest to the depositors.

"It will create liquidity pressure on the banks in the coming days," he says.

The bank executive informs that 2025 was a learning year for the bankers who see the result of providing loans without proper checking. "I think the bankers will be very careful in terms of giving fresh loans," he adds.

Regarding trust regaining, the bank executive says it will not be an issue if the government properly settles down the payment affairs of the depositors in the five Islamic banks merged into the country's largest Islamic bank very recently.​

 

[Saif]

Bank sector fragility persists amid trust deficit

The country’s banking sector passed 2025 in a fragile state amid depositors’ worries, a record amount of non-performing loans, poor business condition, a crisis-induced merger and a partial overhaul...

www.newagebd.net

Bank sector fragility persists amid trust deficit

Mostafizur Rahman 04 January, 2026, 23:52

The country’s banking sector passed 2025 in a fragile state amid depositors’ worries, a record amount of non-performing loans, poor business condition, a crisis-induced merger and a partial overhaul.

While the sector did not collapse, it survived largely on government support and assurances rather than restored confidence of depositors in the just concluded year, experts said.


The year stripped away long-held illusions about banks’ asset quality and governance, but failed to deliver a clear recovery from the damage inflicted on the sector during the Awami League regime which was ousted on August 5, 2024, in the wake of a mass uprising, they said.

Stress was visible from the very beginning of the year. Several banks struggled with acute cash shortages, and customers were unable to withdraw more than a negligible amount a day, despite urgent personal needs.

Small-scale depositors, retirees and pensioners bore the brunt of the disruption.

Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development, said that the banking sector continued to suffer from a confidence crisis because many depositors were still unable to access their own money.

He warned that a prolonged trust deficit could place additional strain on the entire financial system.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank PLC, said that the banking sector managed to survive in 2025.

Mujeri observed that despite bold announcements, the past year delivered little meaningful reform or recovery.

While a few banks appeared relatively stable, he said, most lenders remained weak and burdened by unresolved problems.

According to him, the interim government, which assumed power after the AL regime fall, had a rare opportunity to revive the sector, but largely failed to do so, as its actions exposed corruption, but the root causes of malpractices remained unaddressed.


Mujeri also questioned the decision to merge five crisis-hit Islamic banks into a new state-run institution, noting that state-owned banks themselves were struggling with governance and efficiency issues.

First Security Islami Bank, Global Islami Bank, Social Islami Bank, EXIM Bank and Union Bank merged into Sammilito Islami Bank.

Mujeri said that there was no clear indication that the newly formed would perform better than the existing public sector banks.

As long-hidden defaulted loans began to surface after August 2024, the amount of non-performing loans of the banking sector reached Tk 6.44 lakh crore in September 2025, accounting for nearly 36 per cent of the total outstanding credit.

Distress was no longer confined to a handful of weak lenders. More than a dozen banks reported default ratios exceeding 50 per cent, signalling systemic failure rather than isolated mismanagement.

Large corporate groups accounted for a substantial share of fresh defaulted loans.

Bangladesh Bank officials said that many toxic loans had remained hidden under regulatory forbearance during the previous government.

Asset quality reviews initiated in the past year exposed how deeply loan irregularities had penetrated bank balance sheets.

Mahbubur pointed to the sharp rise in bad loans, a collapse in private sector credit growth and a widening fiscal deficit that pushed the government to borrow heavily from banks.

That borrowing drove up treasury bill yields and tightened liquidity across the system, he said.

The banker said that depositor confidence suffered badly as customers failed to withdraw funds when they needed them most.

He added that uncertainty over whether bank mergers would actually protect depositors continued to weigh on their sentiment.

Mahbubur said that business conditions did not improve due to political unrest and weak law and order, which continued to weigh on banking activities.

While the BB initiated some reforms, including board restructuring at several banks, he said that they took a little action against previous board members and officials responsible for the crisis.

He acknowledged some improvement in the balance of payments, supported by higher remittance inflows and foreign exchange reserves.

However, he said, recovery will take time and depend heavily on whether the next government carries forward reforms with consistency.


Policy continuity, he added, is essential to restore trust in the banking sector.

Experts said that macroeconomic conditions compounded banking stress as inflation eased slightly but stayed close to 8 per cent throughout the year, well above the central bank’s comfort range.

At the same time, the private sector credit growth fell to historic lows as banks tightened lending standards.

The policy rate remained at 10 per cent, pushing lending rates to about 14 per cent and discouraging new investments.

With borrowing costs elevated, political uncertainty lingering and law and order concerns persisting, business activity remained subdued, limiting banks’ ability to rebuild healthy loan portfolios.

Sammilito Islami Bank PLC, which was created through the merger of five crisis-hit Shariah banks, received licence on October 30, 2025.

The bank has Tk 35,000 crore in paid-up capital, including Tk 20,000 crore from the government.

The BB declared that shareholders of these banks would not receive any compensation as their asset values turned negative.

The government strengthened the legal framework by enacting the Bank Resolution Ordinance 2025, which empowers the Bangladesh Bank to intervene in failing banks and impose losses on shareholders.

The central bank updated loan classification rules, began comprehensive asset quality reviews and prepared to shift towards risk-based supervision from January 2026.

In November 2025, the Deposit Protection Ordinance doubled insured deposits to Tk 2 lakh, covering roughly 93 per cent of depositors.

However, the implementation of payout mechanisms remained slow, limiting the immediate confidence boost.

BB governor Ahsan H Mansur also initiated steps to amend the Bangladesh Bank Order 1972 to enhance central bank’s autonomy and reduce political influence, including removing bureaucrats from the board.

But the order is yet to be passed.

Draft amendments to the Bank Company Act, aimed at tightening eligibility for becoming bank owners and directors, were prepared but deferred as the country has entered an election cycle with the 13th parliamentary polls scheduled for February 12.

Crackdowns on illegal money transfer channels helped stabilise the exchange rate at about Tk 122 a dollar.

Record $32 billion remittances and rising foreign exchange reserves, which reached $33 billion by the end of 2025, eased pressure on the balance of payments and supported the overall financial stability in the past year.​

 

[Saif]

Bangladesh Bank moves to liquidate nine NBFIs amid financial sector reforms

Bangladesh Bank is set to initiate the liquidation of nine non-bank financial institutions (NBFIs) following the consolidation of five troubled Shariah banks into a single entity, marking a major step in the central bank’s efforts to reform the country’s financial sector. Governor Ahsa

thefinancialexpress.com.bd

Bangladesh Bank moves to liquidate nine NBFIs amid financial sector reforms

UNB
Published :
Jan 06, 2026 20:48
Updated :
Jan 06, 2026 20:48

Bangladesh Bank is set to initiate the liquidation of nine non-bank financial institutions (NBFIs) following the consolidation of five troubled Shariah banks into a single entity, marking a major step in the central bank’s efforts to reform the country’s financial sector.

Governor Ahsan H Mansur told reporters on Monday that the institutions will be declared ‘non-viable’ within the week, after which a forensic audit will determine their actual financial position and net asset value (NAV).

“The extent of the institutions’ negative asset position cannot be confirmed until the audit is complete,” Mansur said, adding that further measures will be taken once the reports are received.

The central bank is also preparing to reduce shareholders’ stakes in the nine NBFIs to zero, following their failure to return depositors’ funds.

The nine institutions facing potential license cancellations are People’s Leasing, International Leasing, Bangladesh Industrial Finance Company (BIFC), FAS Finance, Aviva Finance, Far East Finance, GSP Finance, Prime Finance and Premier Leasing.

Mansur said the decision reflects long-standing irregularities and weak liability management, emphasising that protecting depositors and restoring sectoral discipline are the central objectives.

A substantial portion of the crisis in these institutions stems from past corruption, particularly under the previous administration.

Four of the companies were reportedly linked to financier Prashant Kumar (PK) Halder, while another is associated with the S. Alam Group.

The total deposits trapped in the nine institutions amount to Tk 15,370 crore, with Tk 3,525 crore held by small depositors and Tk 11,845 crore by institutional and corporate clients.

To safeguard small depositors, Bangladesh Bank has requested Tk 5,000 crore from the government for claim settlements. People’s Leasing accounts for the largest volume of individual deposits at Tk 1,405 crore.

To prevent future crises, the central bank has established a Banking Resolution Division tasked with making swift intervention decisions when financial institutions weaken. While the current process involves five banks and these nine NBFIs, Mansur indicated that additional institutions could be brought under this framework if needed.

Analysts have described the move as a necessary, albeit difficult, step toward greater transparency and long-term stability in Bangladesh’s financial landscape.​

 

[Saif]

Why we need microcredit banks

"Financial inclusion" has been a buzzword in Bangladesh for many years.

www.thedailystar.net

Why we need microcredit banks
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VISUAL: ALIZA RAHMAN

"Financial inclusion" has been a buzzword in Bangladesh for many years. It has been used to justify the increase in the number of banks in the country, as many—primarily the poor—still do not have bank accounts.


At present, there are 62 banks in Bangladesh. Despite the large number of banks, only 28.3 percent of people have bank accounts, according to the Bangladesh Sample Vital Statistics. This is indeed a paradox. Although state-owned banks operate both in rural and urban areas along with a handful of private banks, the poor have less access to them. Foreign banks do not operate in rural areas, let alone offer any services at all to the poor.


Besides, the rural poor are less interested in maintaining bank accounts and the urban poor keep their money in semi-formal and informal repositories. Nevertheless, it is impossible to create a fair banking system by keeping these people outside the banking network. Hence, banks should customise their services to the needs of the poor, instead of just offering priority services to large depositors.


Historically, banks used to collect short-term deposits to provide short-term loans. Over time, they shifted their preference to long-term and large loans, creating a maturity mismatch problem, where deposits mature earlier than the loans. As a result, banks now have to maintain high liquidity to allow assets (loans) to be converted into cash easily to meet the liability (deposit) withdrawal. A sudden surge in deposit withdrawal may leave banks in a position to liquidate assets at very low prices. Also, large loans are always a threat to bank sustainability because the failure of some large loans can eat up the total capital of a bank.


Conventional banks fail to reach the poor as their lending approach is inappropriate. They sanction loans with collateral, but the poor rarely have any assets to provide as collateral. The banks also follow some defined criteria for lending, which most of the poor fail to comply. They prefer large loans to minimise transaction costs, including loan origination fees, application fees, legal fees, etc. But the poor demand small loans, which these banks avoid as their transaction costs are high.


Also, the cost of monitoring numerous small borrowers is high for traditional banks because rural poor live in remote areas and urban poor are mobile and lack permanent addresses. As the poor belong to a deficit group, it reduces the probability of loan repayment. The poor also often use loans in unproductive sectors. Hence, lending to the poor following traditional methods is risky.

Conventional banks also face the problem of asymmetric information—a situation where one party has more information than the other—while selecting poor borrowers. The poor often lack a formal credit history, which may lead to adverse selection—selecting the wrong borrowers at the cost of the right ones. If the wrong borrowers are selected, they tend to divert loans to unproductive sectors, leading to moral hazard. Therefore, banks prefer collateral-backed lending to the poor.


Moneylenders provide loans to the poor without collateral in the informal credit market. As they live in the same community, they possess vast knowledge about potential borrowers. As a result, they can select the right borrowers for lending. But a limited number of professional moneylenders with inadequate funds cannot reach all the poor. Moreover, their interest rates are abnormally high.

In this setting, microfinance institutions (MFIs) have been able to grant collateral-free loans to the poor, reducing the asymmetric information problem through self-selected groups and joint liability. They leave the responsibility of borrower selection to the poor. In the microcredit system, generally, a group of five members is formed. Although a loan is sanctioned to a borrower, all members of the group remain liable for its repayment. If the loan is not repaid, other members will not be granted any new loans. So, every member has an incentive to monitor the loan performance. They ensure that the loan is appropriately used and repaid on time. This motivates poor households to select those people for the group who tend to be honest. Living in a well-connected society, the poor have comprehensive information about each other's financial discipline.

The provision of collateral-free loans is important to the poor, and this feature makes microcredit superior to other credit. MFIs do not require borrowers' formal credit history; the loan application process is simple; the cost of information search and loan monitoring is transferred to groups; and there is proximity between borrowers and lenders. So, the transaction costs become low.


However, microcredit ceased to be a panacea as it has some limitations. In the microcredit arrangement, members need to form groups, attend weekly meetings, and go through formal training. They have to make some compulsory savings. MFIs operate mainly in rural areas and their presence in urban areas is very narrow; they mainly target women; some charge high interest rates; they fail to target the ultra-poor; and their funds are not enough to cover all the poor. Thus, many poor find microcredit unfit for their needs.

Even though traditional banks do not mind receiving deposits from the poor, they have reservations about granting them loans. The current banking system transfers the funds of the poor to the rich and creates a financial inequality between the rich and the poor. So, a banking system that will reinvest deposits from disadvantaged communities back into those communities is needed. This can be done by microcredit banks to a large extent.

Microcredit banks will provide financial services to low-income individuals, who are usually excluded from traditional banking systems. Their main objective should be to fight poverty by increasing the financial inclusion of underserved communities. They will essentially grant short-term and small loans without collateral at reasonable interest rates. Their loan application process will be simple, and loans will be sanctioned within a short time. They will create a congenial financial environment for rural and urban poor, which will contribute to the growth of small businesses, leading to sustainable development. The poor will find a dedicated banking system for them. With its help, they will come out of the debt-trap, taking new loans to repay the old ones, leading to growing indebtedness. Eventually, this new institution will help the poor come out of poverty.

Furthermore, conventional banks offering small loans will face competition from microcredit banks. The presence of usurious moneylenders will come down. Some MFIs will be compelled to rationalise their interest rates. By maintaining an acceptable level of maturity mismatch between deposits and loans, microcredit banks will face less liquidity risk, which is a principal source of bank failure. This will ensure a viable banking system by protecting deposits and promoting public confidence. The emergence of microcredit banks will highlight the failure of our prevailing financial system to reach the poor, and show the conventional banks how they missed a big business opportunity by ignoring a large section of consumers.

Dr Md Main Uddin is professor and former chairman of the Department of Banking and Insurance at the University of Dhaka.​

 

[Saif]

Microcredit bank plan stirs debate over profit vs social goals

Bangladesh gave the world the model of modern microfinance, proving that poor people are creditworthy. The success of the Grameen Bank reshaped development finance globally. Now, the interim government led by Muhammad Yunus, founder of the Grameen Bank, is seeking to push the sector into the...

www.thedailystar.net

Microcredit bank plan stirs debate over profit vs social goals

Sector leaders question capital rules, dual regulation and investor influence, while authorities say review is underway for clarity

Bangladesh gave the world the model of modern microfinance, proving that poor people are creditworthy. The success of the Grameen Bank reshaped development finance globally. Now, the interim government led by Muhammad Yunus, founder of the Grameen Bank, is seeking to push the sector into the next phase.


The target is to reach the 45 percent of adults who remain outside the formal banking system. To that end, the Financial Institutions Division (FID) has unveiled the draft Microcredit Bank Ordinance 2025, proposing a new tier of lenders called microfinance banks.


These institutions would combine the outreach of microcredit organisations with the services of commercial banks, offering products ranging from savings accounts to agricultural support, without collateral.

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, described the proposed banks as a "progressive step".


"If they follow a social-business model and reinvest their profits, I don't see any problem," Hussain said.

At its core, the proposed banks would change how microfinance operates in Bangladesh. By allowing these new banks to accept shareholder investment and distribute dividends, the draft introduces profit incentives into a sector long designed around reinvestment and social outreach.

This shift has triggered strong resistance from the very institutions the model seeks to emulate. In a joint statement issued on Sunday, leaders of big microfinance institutions, including BRAC and ASA, warned that the draft ignores the "realities" of microfinance in Bangladesh.


A key point of contention is the distinction between "surplus" and "profit".

Microfinance institutions (MFIs) are not charities. They charge interest to cover operating costs and generate surplus income. Under the existing NGO-based framework, however, that surplus cannot be distributed. It must be reinvested to expand outreach or strengthen capital buffers.

The draft ordinance would alter this structure by introducing shareholder profit. As microfinance banks would operate on a commercial footing, investors would expect dividends.

Critics argue this creates an inherent tension. To maximise returns, management could face pressure to move away from lending to the "ultra-poor", who are costly and risky to serve, and instead focus on wealthier and safer borrowers. This potential "mission drift" is what sector leaders fear most.

The proposed capital structure has further unsettled institutions.

The draft requires each microfinance bank to have at least Tk 100 crore in paid-up capital. Up to 60 percent of this could be raised from borrower shareholders, with the remainder coming from other investors.

This presents a fundamental dilemma. Many microfinance institutions hold large asset bases but have no formal ownership structure capable of injecting equity.

To meet the capital threshold, they may be forced to sell stakes to individuals or corporate investors. Sector leaders fear this could shift control away from social objectives and expose the institutions to the same governance failures that have long plagued commercial banks.

Mohammed Helal Uddin, executive vice-chairman of the Microcredit Regulatory Authority (MRA), acknowledged that the draft, at which stage it is now, remains "incomplete", particularly on the question of how existing assets and liabilities would be converted into bank capital.

Some MFIs hold assets or liabilities worth Tk 30,000 crore to Tk 50,000 crore. The draft does not yet explain how these amounts would translate into paid-up capital, he said.

"That part is still missing," Helal Uddin admitted. "The draft will undergo further changes. That is why a technical group is already working on it."

Only after this process is completed, he added, would it be possible to assess the final shape of the ordinance.

Several broader questions also remain unresolved. If these entities continue to provide microcredit, how different will they be from existing MFIs? If they become banks, they would fall under the supervision of the Bangladesh Bank -- so what will their tax treatment be?

"There is still scope to work further on these issues, and that is exactly what the technical team is doing," Helal Uddin said.

"The Bangladesh Bank, the finance ministry and other stakeholders are also providing their opinions. Through this process, the draft will reach a more complete stage. Only then can it be judged whether this truly poses a concern for the sector."

Asked why major sector players were not consulted during drafting, Helal Uddin conceded that some institutions now objecting were not consulted, while stressing that discussions did take place with other stakeholders.

He also noted that once the law is finalised, detailed rules and regulations would be developed, which should clarify many implementation issues.

The draft defines microfinance banks as social businesses. Under this model, investors would recover their capital gradually through dividends over many years. In real terms, inflation would erode their returns. For example, an investment of Tk 100 recovered over 15 years would lose much of its value.

"If an investor cannot recover any part of the principal at all, then what incentive is there to invest? That question is still not clearly answered," Helal Uddin added.

REGULATORY DUALITY

Regulatory confusion is another flashpoint. The draft suggests licences would be issued by the Microcredit Regulatory Authority (MRA), raising the prospect of dual or even multiple oversight.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), argued that if these institutions are banks, they should be regulated solely by the central bank.

"A dual system never works well," he said.

State-owned banks already operate under overlapping authority from the Financial Institutions Division and the Bangladesh Bank, and their performance has suffered as a result. Adding the MRA could introduce a third layer of supervision, further complicating oversight, Mujeri warned.

"In India, microfinance banks are regulated by the Reserve Bank of India. Bangladesh should proceed only after a sound and practical assessment," he said.

Mujeri also pointed to disagreement within the sector. "It should be examined whether any vested interest is influencing the process," he added.

Rather than moving quickly, he argued that policymakers should conduct a thorough assessment of whether the model would genuinely benefit poor borrowers.

On profitability, he was direct. "Anyone investing here would naturally expect dividends," Mujeri said. "If there is no dividend, why would someone invest? This issue requires much deeper examination before any final decision is made."​