[🇧🇩] Banking System in Bangladesh

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ACC seeks responsibilities to investigate reserve heist case

Hackers stole USD 81 million from the Bangladesh Bank reserve during the tenure of the Bangladesh Awami League government. The Criminal Investigation Department (CID) of the police could not complete their investigation in the lawsuit that was filed with Motijheel police station in the city...

en.prothomalo.com

ACC seeks responsibilities to investigate reserve heist case
Nurul Amin
Dhaka
Published: 22 Jan 2025, 21: 09

Bangladesh Bank Collected

Hackers stole USD 81 million from the Bangladesh Bank reserve during the tenure of the Bangladesh Awami League government.

The Criminal Investigation Department (CID) of the police could not complete their investigation in the lawsuit that was filed with Motijheel police station in the city even after nine years.

Now the Anti-Corruption Commission (ACC) wants to investigate the case.

CID has already found involvement of 14 people including former central bank governor Atiur Rahman in the reserve heist incident. The immigration police have already placed an embargo on their travelling abroad.

Wishing not to be named, an ACC official told Prothom Alo that the crime of reserve heist incident falls within the jurisdiction of ACC. The former government of Sheikh Hasina filed a fabricated case with the intention to conceal the incident and gave CID charge to investigate that.

The case was filed with Motijheel police station after 39 days of the incident under three sections including theft.

The official further said the heist mainly took place through hacking but the lawsuit was filed under theft sections. Though there are sections related to hacking, the case was filed in such a way so that the accused could get released even after submitting the charge sheet.

ACC sources said a letter was sent on 31 December 2024 to the CID seeking responsibilities of the investigation. CID received the letter on 2 January but has not yet made any reply.

Of the people barred from travelling abroad, 10 could be identified. They are - former governor of Bangladesh Bank Atiur Rahman, former director of Summit Alliance Port and Institute of Bankers Bangladesh Anisuddin Ahmed Khan lias Anis A Khan, former maintenance engineer of Bangladesh Bank Dipankar Kumar Chowdhury, former deputy general manager SM Rezaul Karim, former executive director Suvongkor Saha, plaintiff Zubayer Bin Huda, former deputy director (SWIFT operator) GM Abdullah Salehin, assistant director Sheikh Riaz Uddin, officer Eklas Uddin and incumbent executive director Mezbaul Haque.

Sources involved with the investigation said Atiur Rahman has left the country even before the court pronounced the order barring him from travelling abroad but the others are staying in the country.

The ACC letter, sent to the CID seeking the case dockets, evidence and other records and documents, requested to handover the case to the anti-graft body.

It said as per section 21 of the CrPC, this investigation falls under the jurisdiction of the ACC as all the people, including the former governor of Bangladesh Bank, involved with the incident are, according to the corruption prevention act and bank company act, public servants.
No CID official, involved with the investigation, however, agreed to comment on the case.

Asked about the letter, ACC director general Akhtar Hossain told Prothom Alo that he did not know this. He could inform this later after inquiring.

On the night of 4 February, 2016, 81 million US dollars were stolen from the reserves of Bangladesh Bank. The criminals resorted to fraud using the SWIFT payment system and withdrew the huge amount of money from the reserves of Bangladesh Bank kept at the Federal Reserve Bank of New York in the United States.

This money went to four accounts at the Rizal Bank branch in Makati City, Philippines, and the money was quickly withdrawn from there. Of the amount, 34 per cent of the money has been recovered. The rest is still deposited in a bank in the Philippines. Bangladesh Bank has filed a case against the Philippine bank in a US court. If the case is won, the rest of the money will be recovered.

Investigation sources said hackers were able to withdraw money from reserve due to negligence in security of SWIFT system. Bangladesh Bank's forex reserve SWIFT (Society for Worldwide Inter Bank Financial Telecommunication) server is a sensitive system. Despite that, then governor approved the connection of Real Time Grace Settlement (RTGS) through the SWIFT and ensured its implementation. The investigators identified this as a criminal move. RTGS is a specialised fund transfer system, through which funds can be transferred from one bank to another instantly.

The investigation also revealed that the then deputy governor-4 Abdul Kashem was against providing RTGS service through SWIFT. As a result, Atiur Rahman himself signed the file for providing RTGS service. Some officials of Bangladesh Bank connived with hackers for pecuniary benefits, though they didn’t get their share after the matter came to light.

Asked, former inspector general of police (IGP) Nurul Huda told Prothom Alo that attorney general should be consulted before transferring the case. The attorney general, who is the top legal officer of the state, can make the right decision considering the fact that if the investigation was done correctly.​

 

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BANKING SECTOR: Legal complexities worsen default loan crisis

The legal framework for handling non-performing loans (NPLs) in Bangladesh has become dysfunctional, allowing wilful defaulters to exploit loopholes and delay repayment, according to a report by the task force on economic reforms...

www.newagebd.net

BANKING SECTOR: Legal complexities worsen default loan crisis
Staff Correspondent 01 February, 2025, 22:55

Representational image. | New Age file photo

The legal framework for handling non-performing loans (NPLs) in Bangladesh has become dysfunctional, allowing wilful defaulters to exploit loopholes and delay repayment, according to a report by the task force on economic reforms.

The report, titled ‘Task Force Report on Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development’, was presented by planning adviser Wahiduddin Mahmud to chief adviser Professor Muhammad Yunus on 30 January.

Distressed assets in Bangladesh’s banking sector surpassed Tk 6.75 lakh crore at the end of FY24, an amount equivalent to the cost of 13.5 Dhaka Metro systems or 22.5 Padma Bridges, according to a draft White Paper released in December.

Distressed assets include non-performing loan, rescheduled, restructured, written-off, and litigated loans. The review of the White Paper puts the banking sector on top of the most corruption-ravaged sectors.

With Tk 1,78,277 crore stuck in 72,543 cases as of February 2024, the backlog of cases under the Money Loan Court Act and the Bankruptcy Act has severely hindered efforts to resolve bad loans, according to the task force report.

The Money Loan Court Act, 2003 mandates post-litigation mediation rather than pre-litigation arbitration, making settlements difficult once disputes escalate, it said.

According to the task force report, defaulters have misused this provision to prolong cases, while the requirement for banks to sell collateral before filing lawsuits further complicates debt recovery.

Defaulters usually obtain stay orders from the High Court and delay the course of justice.

The low judge–population ratio and insufficient courtroom facilities have created a bottleneck in resolving NPL-related cases, the report said.

The Bankruptcy Act, 1997, which only applies to individuals and not businesses, leaves major corporate defaulters beyond legal reach.

Over the years, legal reforms have favoured politically connected bank directors rather than strengthening governance.

Amendments to the Bank Company Act in 2018 allowed more family members to serve on bank boards, while a 2023 revision extended director tenures to 12 years.

A major regulatory change in April 2024, through BRPD Circular 07, further weakened accountability by revoking the group default clause, allowing subsidiaries of defaulting business groups to secure fresh loans, the task force report said.

The government’s reluctance to take punitive action — such as freezing bank accounts, liquidating assets, or blocking financial transactions — has emboldened defaulters, worsening the banking crisis, it said.

Access to timely and reliable financial data has also been restricted, creating a lack of transparency, it said.

Since 2018, critical bank-specific data on capital adequacy, asset quality, and liquidity have not been publicly released, while many weak banks have failed to disclose mandatory financial statements under BASEL III standards, the report said.

Arbitrary loan classification changes have further distorted the real NPL situation, often contradicting IMF guidelines, it added.

The crisis, long concealed under regulatory opacity and political influence, came into sharper focus after the mass protests of July 2024, it claimed.

Bangladesh Bank data showed that the NPLs shot up by more than Tk 1 lakh crore to Tk 2,84,977 crore in September from Tk 1,82,295 crore at the end of March.

About 17 per cent of total bank loans — amounting to Tk 16.82 lakh crore — are classified as non-performing, the highest ratio in South Asia.

The defaulted loan figure was Tk 2,11,391 crore at the end of June, Tk 1,45,633 crore in December 2023 and Tk 1,55,398 crore crore in September 2023.

The figure has ballooned by Tk 2,62,737 crore over the past 15 years since 2009, when the Awami League assumed power.

At that time, the total defaulted loan stood at Tk 22,240 crore.​

 

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FID undermines Bangladesh Bank autonomy

Economists in a latest task force report have blamed poor leadership and the Financial Institutions Division for the erosion of the Bangladesh Bank’s autonomy.

www.newagebd.net

FID undermines Bangladesh Bank autonomy
Mostafizur Rahman 02 February, 2025, 00:22

Economists in a latest task force report have blamed poor leadership and the Financial Institutions Division for the erosion of the Bangladesh Bank’s autonomy.

They observe that poor leadership at the central bank over the past 10–15 years, coupled with the formation the Financial Institutions Division under of the Ministry of Finance in 2010 by the now deposed Awami League regime, has significantly diminished the central bank’s independence.

The observation was revealed in a document titled ‘Task force report on re-strategising the economy and mobilising resources for equitable and sustainable development’ presented by planning adviser Wahiduddin Mahmud to the chief adviser, Professor Muhammad Yunus on January 30.

The report was prepared by 11 renowned economists and other experts.

The establishment of the FID in 2010 introduced dual regulation of the banking sector by Bangladesh Bank and the FID, the report said, observing that the presence of dual regulators exacerbated governance failures instead of strengthening oversight mechanisms.

The move to establish the FID contradicted the Bangladesh Bank (Amendment) Act, 2003, which granted the central bank autonomy over its operations, monetary policy formulation and implementation, the report stated.

The FID’s mandate itself reflects how it undermines Bangladesh Bank’s sovereignty, according to the report.

It holds the authority of ‘administration and interpretation of the Bangladesh Bank Order, 1972, and the orders relating to specialised banks as well as matters concerning the state-owned banks, insurance, and financial institutions.’

By assuming this role, the ministry of finance effectively established its control over the central bank’s governance, the report noted.

Following the FID’s establishment, banking sector governance significantly deteriorated.

Bank licences were granted based on political considerations, non-performing loans surged, and regulatory oversight weakened.

In 2013, the government approved the establishment of nine private commercial banks despite widespread concerns over their economic justification.

Referring to a study, the task force report mentions that 95 per cent of banking officials believed these banks were unnecessary.

The Bank Company (Amendment) Act, 2013 mandates that new commercial banks should be licensed based on economic necessity and prevailing financial conditions.

But in Bangladesh, political influence has outweighed economic rationale in bank licensing, the report says.

Over time, bank licences have increasingly become tools for embezzling public funds, the report highlights.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, told New Age that there was a conflict of interest between the roles of the Financial Institutions Division and Bangladesh Bank, adding that their responsibilities should essentially be separated.

He suggested that the central bank should function as a constitutional body, accountable to the parliamentary standing committee.

He emphasised that the focus should not be just on empowering the central bank, but also on who was leading it.

Mahbubur underscores institutional reforms to establish a proper structure for the central bank.

The right person must be appointed to lead Bangladesh Bank, with transparent mechanisms in place, including clear eligibility criteria and job descriptions for the governor and deputy governors, to ensure accountability, he stressed.

M Masrur Reaz, chairman of Policy Exchange Bangladesh, states that while the central bank has never enjoyed full autonomy, its independence was completely eroded during the 15-year rule of the Awami League-led government.

He criticised the Awami regime for undermining Bangladesh Bank’s independence, citing undue influence from the head of government and the finance minister.

Reaz emphasised the need for the government to evaluate and strengthen institutional mechanisms to minimise political interference and the influence of powerful business groups.

He also stressed that the accountability of the central bank governor should be ensured through oversight by a more independent body, such as a parliamentary standing committee, to safeguard the institution’s autonomy and integrity.

The taskforce on economic reforms suggests strengthening loan sanctioning processes, depoliticising bank boards, upholding Bangladesh Bank’s independence and enacting legal reforms to address deep-rooted governance issues, enhancing transparency, and ensuring financial stability.

‘In order to remove dual regulation and stop political influence the MoF’s FID should be shut down. The functions of the FID can be performed by the Bangladesh Bank,’ according to the task force report.

The government repeatedly recapitalised state-owned commercial banks burdened with high non-performing loans, allocating Tk 15,705 crore between FY2008–2009 and FY2016–2017, the report further said, adding that these bailouts failed to improve these banks’ financial health.

Political encroachment was also evident in the appointment of Bangladesh Bank governors.

Under the previous government, these appointments became politicised, prioritising the ruling party’s interests over public welfare.

This directly violated the Bangladesh Bank (Amendment) Act, 2003, which states that ‘No person shall hold office as governor or deputy governor who is a member of the legislature, a local government, or employed in any capacity in public service.’

Despite this legal restriction, the previous government appointed a career bureaucrat as Bangladesh Bank governor, further eroding the institution’s independence.

Political interference also extended to coercion and forced resignations.

On January 5, 2017, intelligence agencies abducted senior officials of Islami Bank and forced them to resign.

The same year, businessman S Alam Group secured control over seven private commercial banks, leading to their financial distress.

Shariah-based banks, in particular, faced severe liquidity shortages after their takeover.

The governance crisis was further exposed by the 2016 cyber heist, in which international hackers stole Tk 679.6 crore from Bangladesh Bank’s treasury account at the Federal Reserve Bank of New York.

Despite the magnitude of the breach, no central bank officials were held accountable.

Instead, efforts were made to suppress the issue, with the Criminal Investigation Department deferring its investigation report for the 80th time as of October 2024, said the report.​

 

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Promoting growth of agent banking

Introduction of agent banking system across the country has taken the banking service to the doorsteps of the common people who so long did not have access to formal financial service. In the traditional banking system, clients have to go to cities and towns for banking purposes; but it is the othe

thefinancialexpress.com.bd

Promoting growth of agent banking
Sarker Nazrul Islam
Published :
Feb 04, 2025 22:03
Updated :
Feb 04, 2025 22:03

Introduction of agent banking system across the country has taken the banking service to the doorsteps of the common people who so long did not have access to formal financial service. In the traditional banking system, clients have to go to cities and towns for banking purposes; but it is the other way round in case of agent banking. Agent banks, aka agency banking, are the banks of the common people at their closer vicinity. Such a service was completely unthinkable for common people in the past when banking transactions were the exclusive affair only of the affluent sections of society. Now people even at the grassroots level with limited financial capacity can avail themselves of the service despite their financial illiteracy.

Agent banks have fulfilled an important need of the people. Within a decade since its introduction in 2013, this innovative financial service system has proved its usefulness in bringing millions of unbanked and underserved communities under the purview of banking services. One of the core advantages of agent banking over traditional banking is that the agents are usually members of the local community having better scope for developing trusted relationship with the service seekers.

Agent banks have brought about a radical change in people's attitude towards the banking system and have achieved significant success in terms of both loan disbursement and deposit collection. With reference to Bangladesh Bank data, this paper reports that loan disbursement by this new category banks reached Tk 9.70 billion in November 2024 from Tk 8.54b in the same month a year ago, posting an increase of about 14 per cent. Deposit collection also showed more than 14 per cent growth to Tk 402.22b from Tk 351.69b in November 2023. Success of these banks is also reflected in the total number of accounts and concentration of the same in rural areas. According to the FE report, 86 per cent of the total 23.89 million accounts are located in villages.

This high percentage of agent bank accounts in rural areas is itself a success in the sense that this system has won the confidence of the rural people and encouraged them to bank with them. This rising popularity of agent banking is an indication of its potential for financial inclusion of people. The steady rise in financial activities demonstrates the growing acceptance of the services. According to the report, the steady upward trend in loan disbursement from Tk 7.73b to Tk 9.7b in January and November 2024 respectively points to rising demand for credit in rural areas, indicating increased liveliness of rural economy.

However, agent banking is not free from challenges. Despite impressive performance, reduction in the number of agents and outlets raises question about the sustainability of the new system. While efforts must be made to find out the problems behind this decline and solve them, incentives should be given to the agents for the expansion of the banking network. For further growth of the agent banking system, experts suggest framing of targeted policies that will encourage banks to expand their network, particularly in areas where people do not have easy access to banking services. The agent banking system will help raise collection of investible surplus and expand rural economy. This innovative banking system should be further expanded at the grassroots level to reach its benefits to the unbanked people.​

 

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Establishment of separate SME bank suggested

A taskforce has suggested establishment of a separate bank or a similar institution to cater the financing need of the small and medium entrepreneurs...

www.newagebd.net

Establishment of separate SME bank suggested
Staff Correspondent 08 February, 2025, 23:17

A taskforce has suggested establishment of a separate bank or a similar institution to cater the financing need of the small and medium entrepreneurs.

The taskforce on ‘Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development’ made the recommendation after finding that the present banking system not equipped to cater to the needs of SME financing.

‘A separate bank or similar institution is needed to serve SMEs financing needs,’ according to the report prepared by the 12-member taskforce led by KAS Murshid, former director general of the Bangladesh Institute of Development Studies.

In its chapter titled ‘Strategies and Action Plan for Development of MSMEs to Enhance Inclusive Growth and Development’, the taskforce report said improvement in accessing institutional finance was imperative for the SMEs accounting for more than 95 per cent of all businesses in the county and contribute to 25 per cent of the gross domestic products.

The draft of the National Small and Medium Enterprise Policy 2025 prepared by industries ministry has also identified that the access to sustainable credit by SMEs as a contentious issue for long.

The unwillingness of banks and financial institutes to provide credits to SMEs became visible with the disbursement of only 27 per cent of Tk 20,000 crore incentive announced by the Bangladesh Bank to tackle the challenge caused by Covid outbreak.

Limited access to finance remained as one of the major challenges for the SMEs over the past decade in Bangladesh, as banks generally favoured larger and well-established companies, according to the White Paper on the State of Bangladesh Economy.

Describing the current SMEs financing windows like Credit Guarantee Scheme and Equity and Entrepreneurship Fund under the Bangladesh Bank flawed or inadequate the taskforce report said the government should provide budgetary allocations to the refinancing scheme and meet up the growing demand for credit of the SMEs.

Describing abundant human capital with inherent aptitude and intellectual capability as advantages the taskforce report also recommended tax break, strengthening the SME foundation, one-stop service centre and developinb Dhaka HAAT to showcase SME products.

It also suggested promotion of ICT applications, E-commerce, online support, outsourcing facilities and other technologies for robust growth of SMEs.​

 

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Why consolidation is crucial for Bangladesh’s banking future

The non-performing loan (NPL) ratio in India stands at around 3 percent, while in Bangladesh, it has skyrocketed to a staggering 13 percent.

www.thedailystar.net

Why consolidation is crucial for Bangladesh’s banking future

The immediate objective of consolidation in Bangladesh’s banking sector would be to protect depositors and prevent systemic collapse. VISUAL: SHAIKH SULTANA JAHAN BADHON

By all objective measures, Bangladesh's banking system is overcrowded. There are 62 scheduled banks under the supervision of Bangladesh Bank, a number that far exceeds that of regional peers when considering banks per capita.

To put this in perspective, India, despite having a population nearly eight times that of Bangladesh, has only 137 scheduled banks—just over twice the number in Bangladesh. Moreover, India's banking system has proven significantly more effective in terms of service penetration: approximately 78 percent of Indians own a bank account compared to only 53 percent of Bangladeshis.

In addition to lower reach, Bangladesh's banking sector struggles with performance. The non-performing loan (NPL) ratio in India stands at around 3 percent, while in Bangladesh, it has skyrocketed to a staggering 13 percent of all outstanding loans (a conservative estimate that may increase further), indicating severe governance and risk management issues.

This raises a critical question: If having more banks hasn't translated into better outcomes, should a reduction in the number of banks be considered as part of the broader reform agenda? And, perhaps most importantly, what approaches can be pursued to drive this consolidation process, and what are the trade-offs involved?

Why is banking sector consolidation necessary

The overbanked yet underperforming state of Bangladesh's banking sector is no coincidence. Over the past few decades, the proliferation of commercial banks has been fuelled by a political culture that treats banks as tools for patronage and, at times, avenues for looting. This unchecked expansion, driven more by political interests than economic needs, has created systemic vulnerabilities.

The consequences are stark. NPLs have surged to an alarming $17 billion, posing a severe systemic risk to the financial sector. The threat of contagion is real: The failure of weak banks with hollowed-out balance sheets could ripple across the system, eroding depositor confidence and destabilising the economy.

To date, Bangladesh Bank has relied on stopgap measures, such as printing money with the intention of mopping it up later, to provide liquidity support to struggling banks. While this offers temporary relief, it does little to address the structural flaws: poor governance, lack of accountability, and unsustainable banking practices.

Experts often point to improving governance across the entire banking system as the solution. However, reforming governance across dozens of weak banks is a monumental challenge. It would require replacing entire boards, overhauling management teams, and retraining operational staff. Even with these measures, weak banks would still face the uphill battle of growing their balance sheets in a contractionary monetary environment.

In light of these challenges, consolidation of the banking system emerges as a pragmatic solution. A smaller banking system would be simpler to govern, more resilient, and better equipped to support sustainable economic growth. In fact, many countries operate with a "Big 4" banking model, where a few dominant, systemically important banks form the backbone of the financial system. These banks are closely regulated and often focus on wholesale and large-scale lending, while smaller, specialised institutions cater to niche markets and underserved segments.

Possible approaches to banking sector consolidation

The immediate objective of consolidation in Bangladesh's banking sector would be to protect depositors and prevent systemic collapse. Potential approaches include shuttering non-viable banks, merging a large number of weak banks together, or integrating weak banks into stronger ones. Each method poses unique challenges and demands careful consideration of the specific circumstances surrounding the banks involved.

The first approach, shutting down non-viable banks, should focus on institutions with hollowed-out balance sheets due to irrecoverable loans. The assets of these banks can be transferred to a government-backed asset management company (AMC) for a token value, while depositors can be compensated using government funds. While this approach ensures deposit holders are made whole, it carries the significant downside of being inflationary if it relies on money printing to fund the initiative. Therefore, it should be limited to the smallest, weakest banks to minimise money printing and its inflationary impact.

Another approach is to merge banks with similar client bases and products to create larger, more resilient institutions. Islami Shariah-based banks, many of which have been severely affected by corruption, could be prime candidates for this strategy. Such consolidation could be supported by capital injections through foreign direct investments (FDI), particularly from Middle Eastern sovereign wealth funds or banking groups capable of providing patient capital and expertise. However, this approach hinges on the ability to attract foreign investments into a distressed and fragmented banking system—a task that will require offering incentives such as tax holidays, exemptions from capital gains tax, and other similar measures.

A final approach, though controversial, is forced consolidation, where weak banks are merged with stronger ones. Even though forced, such a strategy would require substantial liquidity support and regulatory flexibility to ensure it does not significantly impair the financial health of strong banks. To make these deals more viable, the most toxic loans of the weak banks must first be transferred to a government-backed AMC and excluded from the consolidation process. Strong banks must also be granted the discretion to close overlapping branch networks, cherry-pick assets, and selectively retain only essential staff from the weak banks. However, even with such adjustments, strong banks will have little incentive to take on this burden, making forced consolidation a solution that should likely be reserved as a measure of last resort.

Navigating the pain

There is no painless solution for Bangladesh's banking system. Short-term turmoil is inevitable—equity holders of failing banks may be wiped out, and job losses in the sector will be significant. Inflation may spike if significant money printing becomes necessary. Yet, much like treating a sick patient, the medicine must be administered even if distasteful. The focus must remain on managing the immediate side effects while driving the sector towards a full recovery.

The alternative—propping up failing banks indefinitely with government funds—is unsustainable. It merely postpones the inevitable while compounding the cost of reform. Pursuing consolidation will require more than policy directives—it will demand tailored deal-making and robust post-merger integration support. The interim government and Bangladesh Bank must be prepared to engage deeply, navigating complex negotiations to steer this process towards success.

Syed Sadaf Sultan is the founder of Finprojections, a financial consultancy firm, and a former private equity investor based in Singapore.​

 

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Policy rate may remain unchanged

The Bangladesh Bank is expected to keep the policy rate unchanged at 10 percent in its monetary policy stance for the second half (January to June) of the current fiscal year as inflation eased slightly in December.

www.thedailystar.net

Policy rate may remain unchanged
BB to unveil its monetary stance for Jan-Jun today

The Bangladesh Bank is expected to keep the policy rate unchanged at 10 percent in its monetary policy stance for the second half (January to June) of the current fiscal year as inflation eased slightly in December.

The central bank is set to unveil its monetary policy stance today through a press conference scheduled for 3:00 pm at the Bangladesh Bank headquarters. The final decision on the monetary policy stance is expected to be made at the board of directors' meeting of the central bank this morning.

Bangladesh Bank Governor Ahsan H. Mansur will announce the monetary policy stance for the second half of fiscal year 2024-25. This will be the first monetary policy announced by Mansur since he became governor of the Bangladesh Bank following the political changeover on August 5.

Members of the monetary policy committee told The Daily Star that the central bank had initially planned to unveil the monetary policy stance within January but postponed it until Monday (February 10) to review the inflation rate for December.

The governor had hinted that if inflation eased in December, the policy rate would remain unchanged since it had already been raised at an aggressive pace, they added.

Since inflation in December eased slightly, the policy rate is expected to remain unchanged.

In December 2024, inflation declined marginally to 10.89 percent from 11.38 percent in the previous month but remained above the 10 percent threshold for the second consecutive month, according to the Bangladesh Bureau of Statistics. This left the annual average inflation rate for 2024 at 10.32 percent.

Inflation in Bangladesh has remained above 9 percent since March 2023, with the central bank's existing contractionary monetary policy yet to significantly reduce consumer prices. Bangladesh Bank has hiked the policy rate several times, bringing it to 10 percent.

The policy rate is the interest rate at which commercial banks borrow from the central bank.

Beyond inflationary pressure, the overall economy has been facing uncertainties following the fall of the Awami League government. This has been reflected in the deceleration of private sector credit growth.

Private sector credit growth slowed to its lowest pace in at least 11 years due to uncertainty in the investment environment following the recent political changeover. In December 2024, credit flow to private firms grew by 7.28 percent, the lowest since at least 2015, according to Bangladesh Bank data. This was down from 7.66 percent in November.

The current investment climate, banks' cautious lending approach after the political changeover, persistent inflation, increasing lending rates, and poor loan recovery have all contributed to the slowdown in credit growth, industry insiders said.

The volume of defaulted loans reached a staggering Tk 2,84,977 crore as of September 2024, with some banks struggling to provide fresh loans due to a liquidity crunch.

However, the foreign exchange market has shown some flexibility recently, thanks to an uptick in incoming remittances.

Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development, recently said that raising the policy rate to 10 percent had not effectively alleviated inflationary pressure.

"So, it would not be wise to raise the policy rate any further," he added.

Mujeri, a former chief economist of Bangladesh Bank, explained that the central bank's primary tool for addressing inflation is the policy rate. However, further increases would likely harm the economy rather than control inflation, as they would drive up deposit and lending rates.

He suggested that, beyond maintaining a tight monetary stance, the Bangladesh Bank must identify the root causes of inflation and take appropriate measures to reduce it.​

 

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Bridge banks proposed to run failed banks

The Bangladesh Bank will be able to sell or liquidate weak banks by forming bridge banks—financial institutions that temporarily take over a failed bank, according to the draft Bank Resolution Ordinance.

www.thedailystar.net

Bridge banks proposed to run failed banks

The Bangladesh Bank will be able to sell or liquidate weak banks by forming bridge banks—financial institutions that temporarily take over a failed bank, according to the draft Bank Resolution Ordinance.

Finalised by the Bangladesh Bank (BB), the draft was recently published on the Financial Institutions Division website of the Finance Ministry for public consultation.

Bridge banks are designed to ensure seamless banking services while providing time to find a buyer for the troubled institution. They play a crucial role in maintaining uninterrupted banking operations during the resolution process.

Additionally, bridge banks act as isolators, separating distressed banks from the broader sector and absorbing them to prevent panic withdrawals or bank runs.

Under the proposed legislation, the BB will have the authority to establish one or more bridge banks to run the critical and viable functions of distressed banks.

These bridge banks will ensure the continuity of essential banking services while addressing the financial instability of failing institutions.

According to the draft, the central bank will have the power to appoint temporary administrators to manage failing banks. These administrators will operate under the BB's directives to stabilise weak banks and implement necessary recovery measures.

Furthermore, the BB will be able to raise capital through new or existing shareholders to strengthen the financial position of distressed banks.

The proposed legislation also enables the BB to transfer shares, assets, and liabilities to third parties without requiring shareholder consent.

This is meant to facilitate swift resolutions and prevent prolonged disruptions in the banking sector.

The central bank will create a dedicated department to manage the resolution of scheduled banks so that these functions remain outside of its regulatory and supervisory roles.

A "Bank Restructuring and Resolution Fund" will also be formed to finance interventions, backed by government contributions, international financial institutions, and risk-based levies on banks.

A core focus of the draft ordinance is depositor protection, as it seeks to prevent abuses of bank resources by prohibiting insider transactions, unauthorised write-offs of interest for influential borrowers, and artificial inflation of profits.

According to the draft, the BB will be able to restrict shareholders of troubled banks from transferring or disposing of shares. This would help ensure accountability for those responsible for a bank's failure.

In cases where banks fail to meet capital or liquidity requirements or engage in fraudulent activities that risk their financial health, the BB will be authorised to take immediate corrective action.

If approved by the President, the Bank Resolution Ordinance will enhance the central bank's ability to stabilise the financial sector, protect depositors, and ensure the smooth resolution of non-viable banks.​

 

[Saif]

Uneven competition with banks hinders NBFIs’ growth

The country as a whole is going through one of the most difficult periods, created by the previous authoritarian regime through corruption and money laundering and it has left a deep scar on Bangladesh’s overall economy and financial system...

www.newagebd.net

Uneven competition with banks hinders NBFIs’ growth
Mostafizur Rahman 23 February, 2025, 23:21

Humaira Azam

The country as a whole is going through one of the most difficult periods, created by the previous authoritarian regime through corruption and money laundering and it has left a deep scar on Bangladesh’s overall economy and financial system.

As a result, all financial institutions are facing significant challenges in securing funds and procuring new business due to unfair competition with a few banks, market distortions, and governance issues, making it difficult for the majority of banks and financial institutions to operate effectively, said Humaira Azam, Managing Director of LankaBangla Finance PLC.

In an interview with New Age Business magazine, she highlighted the critical issues affecting most NBFIs and banks, including an uneven playing field in deposit collection, reliance on high-cost borrowing from banks, and broader governance failures that have eroded public trust in the financial system.

Some large banks have sought liquidity support from Bangladesh Bank in the face of a deposit run.

Additionally, the non-performing loan (NPL) situation has further weakened the overall financial system, particularly affecting several banks and NBFIs.

NBFIs and banks compete for the same pool of long-term deposits, which serve as the primary funding source for NBFIs.

However, banks hold a significant advantage due to their access to current and savings accounts (CASA), enabling them to offer higher deposit rates without increasing their overall funding costs. This creates a market distortion, making it nearly impossible for NBFIs to raise funds at competitive rates.

As a result of these imbalances, banks attract the best borrowers, while NBFIs are left with riskier clients and lower-quality assets, increasing their exposure to defaults.

Humaira Azam, a career banker who previously served as Managing Director of a private commercial bank, stressed the need for a cap on deposit rates for banks to ensure fair competition and enable NBFIs to compete effectively.

Without such measures, NBFIs are at a disadvantage, particularly as they often have to borrow from banks at high interest rates to sustain their operations—not to mention the mismatch between tenors.

‘NBFIs are treated like any other corporate borrower by banks, which weakens their ability to function effectively,’ she said.

In Bangladesh, the financial sector is overcrowded, with 62 banks and 35 NBFIs competing for the same resources.

This has led to a shortage of qualified professionals, further destabilising the sector. Many NBFIs and banks are struggling to survive and failing to repay depositors, which damages public confidence.

She pointed out that mergers and liquidations are necessary for the sector’s stability. Consolidation would allow well-managed institutions to survive while reducing the risks posed by failing financial institutions. Such steps are crucial for restoring depositors’ trust in the financial sector.

She also underscored the difficulties NBFIs face in raising funds due to the underdeveloped capital market and the absence of a functional secondary market, as one of the primary conditions for funding NBFIs is a long-term bond.

The lack of a robust bond market has made capital collection extremely challenging.

Even large corporations and banks struggle to raise money through bonds, and NBFIs face an even greater disadvantage.

The government dominates the bond market, borrowing at high rates, which raises the benchmarks for all borrowers. This, in turn, increases the cost of capital for private-sector entities, including NBFIs.

‘We also note that Bangladesh Bank has recently been taking steps to reduce rates for government instruments (bills and bonds). This is expected to improve the overall scenario,’ she said.

Regarding the rise in defaulted loans in the industry, she attributed the issue to money laundering by some common borrowers in the industry, as well as some fleeing the country due to their political affiliations.

‘We have identified some borrowers as wilful defaulters and are actively working to hold them accountable,’ she said.

She emphasised that LankaBangla is now prioritising loan recovery, ensuring that even influential defaulters will not be exempt from action.

Another major concern is the governance crisis in financial institutions. Poor oversight and systemic corruption have significantly weakened the sector.

She noted that wilful defaulters continue to exploit both banks and NBFIs. Even globally ranked, well-performing banks have been hijacked by a few individuals, destabilising the entire financial system.

The banking and financial sector in Bangladesh has suffered from multiple financial scams, including Ponzi schemes, multi-level marketing fraud, and e-commerce collapses. These events have eroded public trust, making depositors hesitant to place their money even in strong financial institutions, despite them never having sought liquidity support.

To restore stability, she called for comprehensive reforms, including stricter regulations, enhanced oversight, and greater accountability, which Bangladesh Bank is currently strengthening. Without decisive action, financial institutions will continue to struggle, and public confidence will remain low.

Humaira Azam

She also pointed out a severe shortage of qualified professionals in the sector. Banks and NBFIs require highly skilled financial experts, especially for handling long-term projects that involve complex financial assessments.

However, many professionals, including finance graduates and MBAs, avoid NBFIs due to lower pay and fewer career incentives.

NBFIs face greater challenges than banks, yet their earnings are limited, making it difficult to offer competitive salaries. Without a more attractive pay structure, it will be hard to attract the right talent to strengthen the sector.

Regulators are now reassessing the sector and taking a proactive role in ensuring liquidity support for NBFIs, similar to the measures in place for banks.

A special committee should be formed to devise long-term planning strategies to address the sector’s liquidity and governance challenges, she said.

According to the senior banker, poor corporate governance has been a key factor in the struggles of many banks and NBFIs. While some institutions have remained strong under clean and professional boards, many others have suffered due to corruption at the top, she said.

In many cases, directors have treated financial institutions as their own businesses, leading to reckless decision-making and financial mismanagement.

Where boards remained clean, the institutions performed well. However, in cases where management was given too much unchecked freedom, trust was often breached, she said.

She emphasised that transparency in the financial sector is still lacking, but steps can be taken to rebuild confidence.

A critical issue that requires immediate attention is the asset cover of borrowers. Many businesses have grown substantially, but their collateral has not increased proportionately, she said.

This puts lenders at risk, particularly during economic downturns. In light of global crises, such as commodity price fluctuations and economic instability, NBFIs must reassess asset cover requirements to ensure financial stability.

Currency volatility is another major concern. Sharp fluctuations in exchange rates can disrupt both working capital and long-term loan repayments, increasing the likelihood of defaults where there is dependency on imports.

While loan contracts typically include clauses addressing currency risks, extreme economic conditions—such as those seen in Bangladesh and Sri Lanka—can override these agreements, causing severe financial disruptions.

Economic downturns can significantly impact a borrower’s ability to repay loans, potentially leading to widespread defaults unless lenders provide temporary relief.

If capital machinery has already been imported and a borrower has exhausted their equity, financial inflexibility can cripple even large-scale projects. This calls for a more adaptive approach to risk management.

She urged regulators and policymakers to take immediate steps to address these challenges and implement long-term solutions. ‘Without structural reforms and stronger governance, the financial sector will remain vulnerable to crises, and public trust will continue to erode,’ she said.​

 

[Saif]

Some sick banks may not survive: BB governor

Bangladesh Bank governor Ahsan H Mansur on Tuesday said that the banks those were hamstrung by classified loans over 80 per cent of their outstanding loans would not survive...

www.newagebd.net

Some sick banks may not survive: BB governor
Staff Correspondent 25 February, 2025, 23:09

Ahsan H Mansur

Bangladesh Bank governor Ahsan H Mansur on Tuesday said that the banks those were hamstrung by classified loans over 80 per cent of their outstanding loans would not survive.

‘We have to make a resolution regarding those banks soon,’ he said without naming the sick banks while he was addressing a seminar on the ‘Recommendations by the task force on re-strategising the economy’ online.

Bankers attending the session ‘Macroeconomic policy and governance in the banking sector’ on the last day of the two-day seminar in the capital Dhaka, however, opposed the central bank governor’s observations about the banks.

They said that the economy would not improve unless law and order situation and investment improved.

Abdul Awal Mintoo, chairman of National Bank and also a former president of the Federation of Bangladesh Chambers of Commerce and Industry, urged the BB governor to talk less.

He also wanted to know whether closing down the banks would be able to improve the broken economy left by the Awami League regime ousted in a mass uprising in August in the past year.

Expressing doubt that the task force would make any positive contribution to the economy, he said that the recommendations had no connection with politicians.

‘No reform can be done without politicians,’ he said.

Earlier, Ahsan H Mansur said that the draft of the bank resolution ordinance aiming at making resolution about the sick banks had already been prepared.

Asset valuation of six banks mainly Shariah-based ones previously controlled by a business group is being examined, he said, adding that the bank resolution ordinance would be submitted to the advisory council in April for approval.

He also talked about many other measures taken to improve autonomy of the central bank and curbing inflation.

Dhaka Bank chairman Abdul Hai Sarker, also the chairman of the ad hoc committee of the Bangladesh Association of Banks, said that they did not accept the recommendations made by the task force.

He said there were no representatives from the banking sector in the task force.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, and Md Main Uddin, former chairman of the banking and insurance department at the University of Dhaka, also spoke on the occasion.

Monzur Hossain and Fahmida Khatun, members of the task force, made keynote presentations, highlighting suggestions in the report.​

 

[Saif]

Bangladesh Bank governor’s unfiltered remarks: A cause for concern?

“Mansur is a knowledgeable and well-intentioned governor, but given the sector’s sensitivity, he should exercise extreme caution in his public remarks”

www.thedailystar.net

Bangladesh Bank governor’s unfiltered remarks: A cause for concern?

Ahsan H Mansur. File photo/Collected

Public confidence is the foundation of any banking system. In Bangladesh, that confidence has been steadily eroded over the past 16 years under the Awami League-led government, with the sector plagued by financial scandals, irregularities, and unchecked mismanagement. Against this backdrop, the interim government appointed economist Ahsan H Mansur as governor of Bangladesh Bank last year, replacing former bureaucrat Abdur Rouf Talukder.

Mansur's appointment was widely seen as a much-needed corrective measure for a sector struggling with structural weaknesses. His tenure has been marked by bold reforms, including the restructuring of 11 banks, many linked to the controversial S Alam Group. However, his direct and unfiltered public statements about the fragile state of the banking industry have sparked intense debate -- raising a critical question: Is the governor inadvertently fuelling panic among depositors?

The controversy began last September when Mansur declared in a press conference that at least 10 commercial banks were on the verge of bankruptcy. This blunt assessment sent shockwaves through the financial sector, triggering widespread speculation and fear. Reports soon surfaced of anxious depositors rushing to banks to withdraw their savings, while many demanded the names of the supposedly failing institutions.

Several high-ranking bank executives, speaking anonymously, warned that such public statements -- however well-intentioned -- could have disastrous consequences. In a sector already reeling from a crisis of confidence, even a hint of instability can worsen the very problem regulators are trying to fix.

"Mansur is a knowledgeable and well-intentioned governor, but given the sector's sensitivity, he should exercise extreme caution in his public remarks," one banking executive cautioned.

The debate over Mansur's communication style escalated further yesterday during a virtual session on "Macroeconomic Policy and Governance in the Banking Sector", held on the final day of the "Recommendations by the Task Force on Re-strategising the Economy" conference.

During the session, Mansur reiterated his concerns about struggling banks bluntly: "We are working to support struggling banks, but not all will survive." While he did highlight some progress -- mentioning that Islami Bank Bangladesh and United Commercial Bank had recovered -- his words once again cast doubt over the fate of the rest.

His remarks drew swift and sharp criticism. National Bank Chairman Abdul Awal Mintoo did not hold back, calling on Mansur to curb his rhetoric.

"Constantly discussing the closure of banks is counterproductive. If shutting down banks was the solution, what about the larger economic fallout?" Mintoo said.

He also took issue with Mansur's rigid stance on monetary policy, particularly his opposition to money printing: "He keeps saying he won't print money. But is that an absolute position? Is that always a viable solution?"

Task Force member Monzur Hossain echoed these concerns, calling for greater discretion in the central bank's public messaging. Regulatory bodies must carefully evaluate what information should be disclosed publicly and what should remain internal, he argued.

Mansur's commitment to reform is undeniable, but his approach to public communication is proving increasingly risky. Banking systems are inherently fragile. When the central bank governor himself repeatedly casts doubt on the survival of financial institutions, it risks adding to the crisis, where fear alone can push banks into deeper distress.

Reforms are necessary. Transparency is vital. But in a sector as sensitive as banking, words carry weight. Bangladesh Bank's leadership must refine its communication strategy to prevent unnecessary panic.​

 

[Saif]

True extent of bad loans emerges

Defaulted loans in the country’s banking sector reached a record Tk 3,45,765 crore at the end of 2024 as toxic loans increased sharply following the political changeover in August last year.

www.thedailystar.net

True extent of bad loans emerges
NPLs hit record Tk 3,45,765cr in 2024

Defaulted loans in the country's banking sector reached a record Tk 3,45,765 crore at the end of 2024 as toxic loans increased sharply following the political changeover in August last year.

At the end of last year, total outstanding loans stood at Tk 17,11,402 crore, 20.20 percent of which have turned sour, according to the latest data from the Bangladesh Bank, which was released through a press conference for the first time.

However, distressed assets -- which include written-off loans, rescheduled loans and loans tied up in the Money Loan Court -- stood at Tk 6,68,598 crore.

At the end of September last year, bad loans stood at Tk 2,82,977 crore. In the following three months, the tally increased by Tk 60,788 crore.

This means defaulted loans increased by a staggering Tk 2,00,132 crore in 2024.

Defaulted loans have increased sharply since the political changeover, as the true picture of the sector, concealed during the Awami League government's 16-year regime, has now come to light, The Daily Star has learnt from bankers.

In a statement, the central bank said that defaulted loans increased due to a decline in new loan disbursements and loan renewals, as well as the rescheduling of the maturity period of term loans by the central bank.

Some loans became defaulted following central bank inspections and the vacating of court-issued stay orders related to loan classification.

Bad loans also increased due to the reclassification of rescheduled loans after non-payment of instalments, the statement added.

The growing trend of bad loans could not be arrested as those loans were concealed under the previous regime but have now come to light, said BB Governor Ahsan H Mansur at the press conference yesterday.

Mansur was appointed the central bank governor on August 13 last year.

Some large borrowers, including S Alam Group and Beximco Group, defaulted heavily after the Awami League's fall, pushing the total to an unprecedented level.

The defaulted loan ratio of state-run banks stood at 42.83 percent, while that of private sector banks was 15.60 percent, BB data showed.

Bad loans have increased sharply in some Shariah-based banks controlled by the controversial business conglomerate S Alam Group and in some other banks where Awami League-affiliated businesses had influence, said central bank officials.

Janata had the highest volume of bad loans in the banking sector at the end of last year: as much as 66.8 percent of the bank's total outstanding loans have turned bad.

Of the Tk 67,300 crore of Janata's defaulted loans, about Tk 23,000 crore is of Beximco's, which were classified in the last quarter of 2024.

S Alam Group is another major defaulter, with its defaulted loans at Janata Bank reaching Tk 10,200 crore. It was followed by AnonTex Group (Tk 7,800 crore) and Crescent Group (Tk 3,800 crore).

Not only have bad loans increased, but loan disbursements also rose sharply during the previous regime.

The focus should now be on recovering the money by selling collateral, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

"We have to learn from previous mistakes and avoid repeating them. There must be a willingness to fix the banking sector as intention is the key factor. For that to happen, long-term reforms are needed," he added.

Ensuring proper loan sanctioning, enforcing single borrower exposure limits, halting loan rescheduling and appointing administrators at troubled banks are necessary for the ailing sector, said Fahmida Khatun, executive director of the Centre for Policy Dialogue, at a recent event.

She also emphasised protecting central bank independence, ending bank bailouts through recapitalisation and a licence freeze for new banks.​

 

[Saif]

End the legacy of banking plunder

New data reveals how far the rot of bad loans reached under Awami regime

www.thedailystar.net

End the legacy of banking plunder
New data reveals how far the rot of bad loans reached under Awami regime

VISUAL: STAR

It is quite telling that defaulted loans in the banking sector reached a record Tk 3,45,756 crore by the end of 2024, as per the latest data from Bangladesh Bank. A major factor behind this rise is the long-overdue exposure of financial corruption and cover-ups under the former regime. For years, as non-performing loans (NPLs) continued to rise, we repeatedly pointed out how the Awami League government was using various state and non-state entities to obscure the true extent of NPLs through accounting manipulation. Financial fraud was concealed through deceptive tactics, and the lack of transparency made it difficult to assess the true condition of our banks, even though the public had long suspected the severity of the crisis.

The interim authorities deserve credit for bringing the truth to light. However, this may have been the easier part. The real challenge lies in reversing this trend and recovering as much of the lost money as possible, whether through selling collateral or other means. The situation has been particularly complicated by the massive defaults of some borrowers, such as S Alam Group and Beximco Group, following Awami League's departure. As a result, total defaulted loans have reached an unprecedented level. According to the central bank, the defaulted loan ratio for state-run banks stood at 42.83 percent, while that of private sector banks was 15.60 percent.

Among state banks, Janata had the highest volume of bad loans at the end of last year, with as much as 66.8 percent of its total outstanding loans classified as non-performing. Of Janata's Tk 67,300 crore in defaulted loans, approximately Tk 23,000 crore belongs to Beximco, which was classified as defaulted in the last quarter of 2024. Meanwhile, S Alam Group's defaulted loans at Janata Bank reached Tk 10,200 crore.

Across the sector, similar looting by oligarchs connected to the fallen regime has left a number of banks extremely vulnerable. Even more concerning is the risk that legitimate businesses, struggling as they are in a slow economy, may find it difficult to repay their loans, further worsening the NPL crisis. Under these circumstances, it is crucial for the authorities to send the right signals to help restore confidence in the sector.

The authorities must work diligently to ensure that banks recover risky loans and that stolen funds parked abroad are reclaimed through diplomatic efforts. They also must restore oversight mechanisms and regulatory institutions that have become dysfunctional, ensuring they serve the interests of the nation rather than political elites. They also must hold to account those responsible for the crisis—including corrupt bankers, policymakers, and borrowers—so that such reckless mismanagement is not repeated again.​

 

[Saif]

Banking reform must be carried through

There is no gainsaying the necessity of recovering the banking sector that has been left in ruins through mismanagement and outright looting by the henchmen of the previous dictatorial regime. Against this backdrop, the Bangladesh Bank (BB) governor was spot on when he could not rule out the possib

thefinancialexpress.com.bd

Banking reform must be carried through
FE
Published :
Feb 28, 2025 22:40
Updated :
Feb 28, 2025 22:40

There is no gainsaying the necessity of recovering the banking sector that has been left in ruins through mismanagement and outright looting by the henchmen of the previous dictatorial regime. Against this backdrop, the Bangladesh Bank (BB) governor was spot on when he could not rule out the possibility that some ailing banks now on life-support might face closure. His assertion is incontestable since those sick banks are purely a drain on the public exchequer.

The sooner those banks are given a decent burial the better for the economy even though the idea might be unpalatable to the owners of such sick banks. Notably, the BB governor reportedly expressed his view at a conference titled 'Recommendations by the Task force on Re-strategizing the Economy'. The task forces and the reform measures they have initiated to revive the banking and other sectors of the economy are the undertakings made incumbent on the interim government by the student-led mass uprising. So, there is no question of going back on the reform initiatives such as restructuring of the weak banks in consultations with the government and other stakeholders as told by the governor of the central bank at the conference in question.

When it comes to the issue of reforming banks, it is common sense that the task falls in the domain of experts in the field who are to fulfil the mission of the task force. In that case, it is only expected of the entire banking sector and politicians that they would be supportive of the ongoing reform work now in progress in the sector under consideration. It is reassuring to know that some of the malfunctioning banks undergoing restructuring under the present administration of the central bank including, for instance, the Islami Bank Bangladesh and United Commercial Bank, could finally be recovered and are now reportedly performing well. So, it is encouraging for the owners of other troubled banks.

On this score, a 'draft of bank-resolution ordinance' aiming at resolving the issue of sick banks has already been prepared which would take necessary measures including liquidation, merger and recapitalisation of the ailing banks. While welcoming the move to formulate a legal approach to decide the fate of the banks in serious liquidity crisis or overburdened with non-performing loans, it is also important to develop a system by which depositors could be protected in case any bank goes bankrupt. At this point, a disclosure by the central bank governor that work on framing of a deposit insurance act is ongoing is unquestionably a move in the right direction. It is a move long time coming in the interest of the bank depositors who happened to be the actual victims of the failing banks. While protecting the depositors with insurance coverage, the authorities concerned should also think of taking penal measures against such bank directors or owners who wilfully allowed their banks to go bankrupt. To avoid such undesirable outcome, experts concerned may also think of incorporating the idea of increasing the number of independent directors at the banks as well as prohibiting bank owners becoming chairperson of the banks concerned.

As banks play a key role in the economy by providing financial services and creating credit, its proper functioning should be assured through the ongoing reforms. Let this vital task now in progress continue unhindered.​

 

[Saif]

Banking sector in freefall

Bangladesh is on the brink of a full-scale banking crisis, exacerbated by economic stagnation and political upheaval following the collapse of the Sheikh Hasina regime. At the heart of this crisis lies a banking sector plagued by skyrocketing non-performing loans (NPLs) and pervasive financial mism

thefinancialexpress.com.bd

Banking sector in freefall
Can the interim government pull the brakes?
CAF Dowlah
Published :
Mar 03, 2025 22:12
Updated :
Mar 03, 2025 22:12

A bank staff is counting notes Photo : FE/Files

Bangladesh is on the brink of a full-scale banking crisis, exacerbated by economic stagnation and political upheaval following the collapse of the Sheikh Hasina regime. At the heart of this crisis lies a banking sector plagued by skyrocketing non-performing loans (NPLs) and pervasive financial mismanagement.

Last week, Bangladesh Bank disclosed a sharp increase in classified loans, surging from Tk 2.45 trillion in September to Tk 3.45 trillion in December 2024. Consequently, the NPL ratio jumped from 16.9 per cent to an alarming 20.2 per cent within just three months. In global finance, an NPL ratio exceeding 10 per cent signals severe distress, often necessitating immediate regulatory intervention.

A SECTOR ON THE VERGE OF COLLAPSE: Most of the country's 62 scheduled banks-including six state-owned commercial banks, three specialized banks, and 43 private banks-are in crisis. State-owned banks now report an unprecedented 42.8 per cent NPL ratio, while private banks struggle at 15.6 per cent - clearly far beyond acceptable thresholds.

As of December 2024, Janata Bank held the highest soured loan ratio among the state-owned banks, with 66.8 per cent of its total loans classified as defaults. Some of its largest defaulters included top business conglomerates like Beximco and S Alam Group.

High NPL ratios erode bank earnings, destabilise balance sheets, and weaken financial institutions' ability to meet depositor demands-classic precursors to systemic financial collapse. The 2007-2008 global financial crisis followed a similar trajectory of unchecked bad loans.

Worse still, Bangladesh Bank governor Ahsan Mansur warned last week that the NPL ratio could soon reach 35 per cent, attributing the crisis to widespread corruption and systemic looting over the past 15 years. Citing combined loans of Tk 2.5 trillion issued to S Alam Group and Beximco, he remarked, "Nowhere else have so many banks been looted at once." He further warned that with 12 banks under audit following board dissolutions, the true extent of NPLs may be even higher and that some banks may not survive.

THE MAGNITUDE OF THE CRISIS: When Sheikh Hasina assumed power in 2009, NPLs stood at Tk 224.82 billion. By September 2024-immediately after her removal-this figure had skyrocketed past Tk 2.84 trillion, excluding Tk 640 billion in written-off loans. Trillions more were rescheduled or restructured to obscure the crisis's actual scale. The International Monetary Fund (IMF) estimates that over a quarter of all disbursed loans-more than Tk 5 trillion-are in distress.

Bangladesh has long maintained one of South Asia's highest NPL ratios. Between 2012 and 2021, Bangladesh's NPL ratio averaged 8.16 per cent, second only to Pakistan's 10.32 per cent. By comparison, India and Sri Lanka had lower rates of 7 per cent and 3.94 per cent, respectively. Sri Lanka's NPL ratio in 2022, however, rose to 12 per cent amid a prolonged political crisis.

Moreover, the Hasina regime encouraged loan defaulting by manipulating classification guidelines to mask the true scale of bad loans. Previously, loans were categorised as "classified" if principal or interest remained unpaid, even if not overdue, and a loan was formally recognised as a "default loan" after six months of non-payment. However, in 2019, the Hasina government weakened this standard by granting borrowers an additional six-month grace period following an initial three-month overdue period-effectively delaying default classification until nine months of non-payment.

A LEGACY OF CORRUPTION AND MISMANAGEMENT: Bangladesh's banking sector has long been a breeding ground for corruption, attracting unscrupulous actors who amassed immense wealth at taxpayers' expense. While the problem has escalated to unprecedented proportions in recent years, its roots can be traced back to the immediate aftermath of liberation war, when the entire banking system was nationalised and placed under inept administrative and political control.

Over the decades, nationalised banks were systematically mismanaged for political gain, rewarding loyal cronies along the way. The introduction of private-sector banking since the 1980s did little to curb corruption, as politically connected businessmen continued treating banks as personal cash reserves rather than institutions of financial responsibility.

During Hasina's 16-year rule, banks were plundered by politically connected elites, exacerbating capital flight through illicit mechanisms such as hundi, over-invoicing, and trade mis-invoicing. Reports estimate that Bangladesh loses $3.1 billion annually to illicit financial flows.

A White Paper released by the Interim Government estimates that under Hasina's tenure, an average of $16 billion was siphoned off annually. At its unveiling, Professor Yunus lamented, "Our blood curdles to know how they plundered the economy. The saddest part is they looted the economy openly, and most of us lacked the courage to confront it."

BANGLADESH BANK'S RESPONSE: Taking charge of the financial sector in deep troubles, governor Mansur last November mandated that all overdue loans be classified as NPLs after three months instead of six. This policy, set to take effect in April 2025, aligns with IMF standards under the conditions of Bangladesh's $4.7 billion loan agreement. As part of this deal, he also committed Bangladesh Bank to reduce NPLs to 8 per cent by June 2026.

However, the contradiction at the heart of this policy is glaring: shortening the NPL classification period will inevitably inflate the reported NPL ratio. How, then, does Bangladesh Bank intend to cut NPLs from over 20 per cent to 8 per cent within such a short window? The target appears not just unrealistic but outright delusional. The authorities are thus clearly setting themselves up for inevitable failure-risking further damage to an already fragile banking sector.

In the meantime, Bangladesh Bank has aggressively restructured over a dozen struggling banks, including those tied to the scandal-ridden S Alam Group. In a recent virtual session, central bank governor warned that 10 more commercial banks were on the brink of collapse and that some may fail. While such transparency is a welcome departure from past denialism, without concrete, pragmatic solutions to restore stability, these warnings may fuel panic rather than confidence in a banking sector already on the verge of collapse.

Reports indicate that Bangladesh Bank is considering establishing bridge banks-temporary entities to take over failing institutions-along with a Bank Restructuring and Resolution Fund, supported by government contributions and international lenders. While these measures aim to stabilise the sector, they raise serious concerns. Bridge banks offer only a short-term fix, often plagued by inefficiencies and weak depositor confidence, which could worsen instability. Meanwhile, reliance on government funds and external aid risks depleting public resources, increasing debt, and exposing the country to restrictive lender conditions. Rather than providing lasting solutions, these initiatives may merely postpone an inevitable financial reckoning.

REFORM OR RUIN: Bangladesh's banking sector has devolved from mere inefficiency into a hub of corruption, money laundering, and financial fraud. What was once a state-controlled system designed to serve the public has been hijacked by political elites, prioritising their own interests over economic stability. Rampant mismanagement and regulatory complacency have turned the sector into a liability rather than an asset for the nation.

Restoring credibility demands more than superficial reforms-it requires a complete overhaul, strict accountability, and a decisive break from the entrenched culture of financial exploitation. Without bold action, the sector risks sinking further into dysfunction and systemic collapse. Here are some suggestions that policy makers may consider.

First, without reducing NPLs, improving banks' capital adequacy is impossible. Over a decade, state-owned banks have consistently failed to meet minimum capital requirements, with NPL ratios averaging over 20 per cent. Specialised banks, in particular, remain critically undercapitalised. Yet, instead of enforcing discipline, Bangladesh Bank has repeatedly bailed out these failing institutions-at taxpayers' expense and under political directives.

This cycle of barefaced financial misgovernance has not strengthened the banking sector; it has entrenched its weakness. The time for half-measures is over. The state must stop propping up insolvent banks and let market forces determine their fate. A failing bank should fail-prolonging its existence through endless bailouts only deepens systemic inefficiency and corruption.

Second, privatisation of perenniaally losing state-owned banks is an unavoidable imperative to eliminate political patronage and entrenched corruption and mismanagement. It is, understantably, an ambitious task that the interim government may not have the capacity to fully implement, but it can certainly initiate. A logical starting point would be Janata Bank, which is sinking fast under the weight of corruption, mismanagement and bad loans.

Third, while full-scale privatisation may be beyond the scope of the interim government, at the very least, it can insist on professionalising bank management, severing it from the grip of bureaucratic incompetence and partisan loyalty. This requires accountability-holding those responsible for the financial collapse to criminal justice, whether their crimes stem from negligence, favoritism, or outright embezzlement. Unfortuntely, the interim government has so far shown little inclination to pursue such a course.

Fourth, the Interim Government must urgently overhaul Bangladesh Bank. A politicised and compromised regulator cannot fix the system it helped destroy. The institution needs a complete reset-governed by an independent board of proven experts, each overseeing critical policy areas, under a respected, impartial chairman. Leadership must be earned through merit and expertise, not bureaucratic inertia or political patronage. Without this fundamental restructuring, any attempt at financial reform will be nothing more than a facade, perpetuating the same dysfunction that brought the sector to the brink of collapse.

Ultimately, Bangladesh's financial recovery hinges on a fundamental transformation: a banking system that serves the people, not the powerful elites.Without this seismic shift, the nation's economy will remain shackled to the very predators who drove it to the edge of collapse.

Dr CF Dowlah is a retired professor of Economics and Law in the United States. Currently he serves as Chair, Bangladesh Institute of Policy Studies (BIPS).​