[🇧🇩] Banking System in Bangladesh

[Saif]

BB takes short, long-term steps to curb NPLs

The Bangladesh Bank has undertaken short, medium, and long-term measures to reduce non-performing loans (NPLs) alongside strengthening credit discipline and improving governance in the country's banking sector. The central bank has taken a number of measures to accelerate recovery of classified lo

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BB takes short, long-term steps to curb NPLs

The Bangladesh Bank has undertaken short, medium, and long-term measures to reduce non-performing loans (NPLs) alongside strengthening credit discipline and improving governance in the country's banking sector.

The central bank has taken a number of measures to accelerate recovery of classified loans, strengthen banks' credit risk management and establish a more disciplined lending culture, according to a report presented at the fourth meeting of the Parliamentary Standing Committee on the Ministry of Finance.

The committee, at its fourth meeting recently held at the Jatiya Sangsad Bhaban with its chairman Mushfiqur Rahman, MP, in the chair, stressed ensuring transparency, accountability and economic stability in the country's financial institutions, particularly banks, reports BSS.

As part of its short-term plan covering one year, Bangladesh Bank will hold quarterly discussions with the senior management of banks where the classified loan ratio exceeds 10 per cent. The discussions will identify obstacles to loan recovery and require the concerned banks to prepare action plans to address those problems.

The central bank will also review the recovery progress of the top 20 defaulted or classified borrowers at every bankers' meeting.

It plans to formulate guidelines on NPL resolution strategy for banks with high classified-loan ratios and update the Credit Risk Management Guideline.

The central bank also plans to implement loan classification and provisioning based on Expected Credit Loss (ECL) in line with IFRS 9. The measure aims to improve governance in banks' loan management and mitigate credit risks.

The legal aspects of publishing lists of defaulted and willful defaulters are also under review.

When sought comments, World Bank Division Director for Bangladesh and Bhutan Jean Pesme said the discussion aims to encourage the progressive exit of forbearance. "We think that more needs to be done on the NPL to accelerate the NPL resolution mechanism by creating more incentives for the banks and the debtors to find a solution."

Under the medium-term plan ranging between two to three years, Bangladesh Bank will formulate a policy to provide special allowances to officials who work to recover classified loans and encourage them to intensify recovery efforts.

It will also review and update the existing policy for identifying and providing incentives to good borrowers - those who regularly repay their loans - with the aim of developing a sound credit culture in the country.

Under its long-term strategy ranging four to five years to contain the rising volume of defaulted loans, Bangladesh Bank plans to strengthen the overall credit management framework of banks and ensure greater discipline in loan sanctioning, monitoring, recovery and classification.

The long-term measures focus on addressing the structural weaknesses that contribute to the accumulation of non-performing loans rather than relying only on recovery drives after loans become classified.

The need for such long-term reforms has become more urgent as defaulted loans reached Tk 5,81,237.56 crore, or 31.41 per cent of total loans, as of June 30, 2026, up from Tk 5,64,105.64 crore, or 30.92 per cent, on March 31, 2026. The amount increased by Tk 17,131.92 crore, while the ratio rose by 0.49 percentage points during the three-month period.

In essence, the long-term strategy seeks to shift the banking sector from reactive recovery of already-defaulted loans toward preventive credit risk management, stronger governance, effective recovery mechanisms and greater accountability in lending.

The presentation also outlined progress in amending and modernising laws considered necessary for strengthening banking governance and recovering defaulted loans.

The draft Bank Companies (Amendment) Act, 2026 seeks to strengthen governance in the banking sector. A revised draft was sent to the Financial Institutions Division on August 24, 2026, following decisions taken at an inter-ministerial/stakeholder meeting on April 22 and instructions issued by the division on April 26.

The latest inter-ministerial/stakeholder meeting was held on September 20, 2026.

The authorities are also working to enact the Artha Rin Adalat (Amendment) Act, 2026, to improve loan recovery and related activities in the banking sector.

An inter-ministerial meeting was held at the Law and Justice Division of the Ministry of Law, Justice and Parliamentary Affairs on January 7, 2026, to discuss the modernisation of the law.

Earlier, the Financial Institutions Division formed a committee headed by an additional secretary on January 19, 2026, to review the draft. The committee prepared a draft proposal and sent it to the Law and Justice Division on January 26, 2026, for necessary action.

A separate committee headed by an additional secretary of the Financial Institutions Division is currently working on preparation of the draft of the amended law.

The authorities are also working on the Distressed Asset Management Act (DAMA), 2026 to improve the recovery of defaulted loans in the banking sector.

In addition, the proposed Insolvency and Bankruptcy Act, 2026 seeks to modernise the existing Insolvency Act, 1997, align the insolvency regime with international best practices, strengthen the overall bankruptcy framework and support financial institutions in managing credit risks.

With assistance from the International Finance Corporation (IFC) of the World Bank Group, the English draft of the new insolvency law has been finalised in a modern format.

The authorities have requested IFC's assistance in translating the draft into Bangla. After finalisation of the Bangla version, it will be sent to the Financial Institutions Division for further action.​

 

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How Islamic are Islamic banks?

Although around one-fourth of the country's banking activities are now considered Shariah-based, some quarters have already raised a few troubling questions. The main questions they ask is: to what extent do Islamic banks follow Shariah principles (Islamic law)? Several Islamic scholars have also e

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How Islamic are Islamic banks?

Although around one-fourth of the country's banking activities are now considered Shariah-based, some quarters have already raised a few troubling questions. The main questions they ask is: to what extent do Islamic banks follow Shariah principles (Islamic law)? Several Islamic scholars have also expressed reservations about the current state of Islamic banking. Some believe most Islamic banks are not yet fully Shariah-compliant. A few even have harsher assessment; none of the Islamic banks is at all Islamic.

Currently, 10 full-fledged Islamic banks operate in the country, and 17 conventional banks have 53 Islamic bank branches. Another 23 conventional banks have 23 Islamic banking windows. Thus, among 63 scheduled banks, 50 have Islamic banking operations, either fully or partially. Bangladesh Bank statistics also showed that at the end of the last fiscal year (FY26), the Islamic banking sector accounted for 22.53 per cent of the total banking industry's deposits and 29.19 per cent of the industry's total advances or investments.

Besides Islamic banks, Islamic financing activities by Non-Bank Financial Companies (NBFCs) are rising modestly. Currently, 35 NBFCs operate, of which two are full-fledged Islamic. In addition, one conventional NBFC provides Islamic financial services through seven Islamic branches, while seven conventional NBFCs provide Islamic financial services through 69 Islamic windows. A bank or NBFC with an Islamic window provides limited Islamic financial services through a dedicated desk or counter at a branch. A bank or NBFC with an Islamic branch indicates that the dedicated branch provides Shariah-compliant services.

Organisation of Islamic Cooperation (OIC), the inter-governmental platform of the Muslim majority countries, defined the Islamic bank as "a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations." The core guiding principles that govern Islamic banking are 'mutual risk and profit sharing' between parties, the 'assurance of fairness for all ', and that 'transactions are based on an underlying business activity or asset.' Because Islamic law strictly prohibits interest (riba), gambling (maisir), and speculative trading (gharar), the Islamic banking and financing framework does not allow any commercial activity linked to interest or gambling. Instead, it encourages activities that cultivate entrepreneurship, trade and commerce and bring social development or benefit.

Thus, the main challenge for an Islamic bank or financial company is to ensure that it has no exposure to interest-based activities, the core driver of conventional banking worldwide. Riba is the Arabic term for interest charged on loans and covers all interest, not just excessive interest (usury). Islamic law forbids a Muslim from paying and accepting interest at a predetermined rate. So, when conventional banks offer interest on deposits and charge interest on loans, it breaches Islamic Shariah. Islamic banks offer Shariah-compliant alternatives by providing profit-and-loss sharing tools.

Many Muslims in Bangladesh do not want to receive interest on their deposits. So, they prefer Islamic banks that offer no predetermined profit. In practice, Islamic banks set a provisional profit rate, subject to revision and adjustment at year-end. Some argue that the pre-determined profit is also interest in disguise, since there is no way to escape it. Why would depositors park their money if they get nothing in return? And without collecting deposits, how will an Islamic bank finance or invest in industries and commercial activities? Banking governance guide

Unlike conventional banks, Islamic banks do not disburse loans or advances; instead, they finance business and trade through investment. This is because traditional banks charge and earn interest on loans or advances without being directly involved in commercial activities. For Islamic banks, this means becoming business partners or investors to earn profits and share them with the partners. To facilitate investment, Islamic banks and financial companies have developed and practised several modes. These are: partnership, ownership-sharing, sale-based, lease-based, and loan-based investments. Under partnership, one partner (the bank) invests in the business, and the other partner (the client) manages it. Finally, they both share the business profits in a predetermined ratio. In case of losses, the bank bears them alone. This kind of partnership is known as Mudarabah. Another type of partnership is Musharaka, where both the bank and the client contribute capital, and the client also provides entrepreneurial skills through labour and management. Profits are shared according to agreed ratios, and losses are borne in proportion to capital contributions. These two types of investments are considered more Shariah-compliant than others.

Other options include Ijara (lease financing), hire purchase, and Qard-e-Hasan (interest-free lending). In leasing or hire purchase, an Islamic bank purchases a specific asset and lets the client use it in exchange for rent for a set period. Once the rent is paid off, the client acquires the asset.

Finally, Bai-Salam is one of the most famous modes of Islamic financing, and Bai-Muajjal is another. The first is a contract in which the buyer pays in advance for goods to be delivered later. The latter is a credit sale. There is also Bai-Murabaha, a cost-plus sale in which the seller discloses the cost of a product and sells it to the buyer by adding an agreed profit margin.

In Bangladesh, Bai-Murabaha and Bai-Muajjal are two of the most commonly used investment modes of Islamic banks. Because the return on these two investment types is fixed or predetermined, Shariah compliance appears questionable. Nevertheless, more than two-thirds of the country's total Islamic bank investment is concentrated in Bai-Murabaha and Bai-Muajjal, or sale-based modes of investment. Bangladesh Bank, in a policy note titled 'An Analysis of Mode-wise Investment of Islamic Banks in Bangladesh', released last month, highlighted the issue. It argued that excessive concentration in sale-based investment modes by Islamic banks may replicate key features of conventional banking. The policy note also pointed out that the overwhelming dominance of sale-based modes reflects a lack of emphasis on profit-and-loss sharing (PLS) modes. Currently, partnership-based PLS accounts for less than 1 per cent of Islamic banks' total investments in the country. This is alarming for the future of the Islamic banking system, as PLS is considered more Shariah-compliant than other investment modes. PLS is based on a risk-sharing partnership in commercial activities and places more responsibility on banks as co-investors. In other words, banks must assess risk more cautiously before investing in a trade. This ultimately reduces overall investment risk, although it may also limit opportunities to invest more.

Moreover, Islamic banks must rigorously ensure the ethical aspects of any commercial activity to comply with Islamic law. If a proposed venture appears harmful to society or the environment, an Islamic bank may not invest in it. For instance, a brickfield pollutes the air, degrades soil, and sometimes causes deforestation. So, an Islamic bank should not invest in a brickfield project.

Nevertheless, the central bank's policy note sends a timely message to rigorously examine the overall status of Islamic banking in the country. Over the decades, many irregularities and unethical practices have occurred in the country's Islamic banking sector. Cronies of the Hasina regime systematically distorted the country's Islamic financing, making it highly questionable and unreliable. So, it is time to move ahead and correct the course of the Islamic banking sector.​

 

[Saif]

BB hands govt Tk 600b annual bill for banking-sector recovery

Bangladesh Bank has sought Tk 600 billion annually from the government over the next five to eight years for recovery of the banking industry that witnessed a massive looting, said the central bank chief. "Last week, we forwarded a draft proposal to the government on how to fix the banking sector.

thefinancialexpress.com.bd

BB hands govt Tk 600b annual bill for banking-sector recovery

Bangladesh Bank has sought Tk 600 billion annually from the government over the next five to eight years for recovery of the banking industry that witnessed a massive looting, said the central bank chief.

"Last week, we forwarded a draft proposal to the government on how to fix the banking sector. And, in the proposal we have sought Tk 600 billion annually over the next five to eight years to recover the banking sector that suffered massive money plundering," BB Governor Md Mostaqur Rahman told a meet on Saturday.

He made the remarks while replying to a question at a question-answer session with students. He attended the function as the chief guest at a function arranged to launch Bangla QR transactions at the United International University (UIU) by ONE Bank PLC in Dhaka.

"When we started working at the central bank, we saw that one -third of the total money in the banking sector had already been stolen. This is the main problem in the sector," he continued.

The governor said they need the money from the national budget and it is people's money. "Now the taxpayers' money will be given to the depositors."

He admitted that the country's revenue collection is about Tk 4.5 trillion and taking away Tk 600 billion from there yearly, surely, is a pressure.

"Until this June, you saw people gather before banks as they failed to withdraw their deposit," he said while replying to a student as to when the situation will improve.

He added they have eased the process so that depositors now can withdraw their money, particularly at some Islamic banks.

"It was outright looting in the banking sector. The plundering group looted taxpayers', public money from the banks," he said, urging society and young generation to be vigilant so that none can loot people's money in the future.

Vice-chancellor of UIU Prof Md. Abul Kashem Mia emphasized implementing and incorporating the advanced technological system in the financial sector so that corruption and irregularities can broadly be controlled.

He said introducing Bangla QR will make UIU a first cashless campus, enabling tuition fees, other fees, retail transactions on the campus charge-and hassle -free.

Managing Director of ONE Bank Muhit Rahman said that their transactions volume has significantly increased in recent times through Bangla QR Code, signaling a fast popularity of it among the users.

He announced they won't charge for using their service through Bangla QR usually being charged outside the campus.

Because of the rapid change in the financial and banking system, there will be a major shift in the transactions with security challenges, he continued.

Emphasizing the cashless transaction, the central bank boss also said that they have to spend an additional Tk 200 billion on paper-cash transactions, including its transportation, making, delivery to booths and banks, which will be half if the Bangla QR sees success.​