[🇧🇩] Banking System in Bangladesh

[Saif]

Banks get remedies but what about ailing NBFIs?

Irregularities, scams, and governance failures necessitate reforms for both banks and non-bank financial institutions (NBFIs), but the severity of ailments in both sectors seems to have left the banking regulator with no option to pick and choose.

www.thedailystar.net

Banks get remedies but what about ailing NBFIs?

Irregularities, scams, and governance failures necessitate reforms for both banks and non-bank financial institutions (NBFIs), but the severity of ailments in both sectors seems to have left the banking regulator with no option to pick and choose.

For the Bangladesh Bank, the question is no longer regarding which will get the remedy first, but how long the other can sustain itself in a state of neglect.

The longer NBFIs remain untreated, the worse their condition will become. Banks require urgent reforms, but so do NBFIs, industry leaders say, warning that delays may push them beyond recovery.

Of the 35 NBFIs in the country, a dozen are currently struggling to repay depositors due to an acute liquidity crisis, a persistent issue that has tarnished the sector's image over the years.

After the political changeover on August 5 last year, the central bank initiated a series of banking sector reforms, including the formation of taskforces, the introduction of new laws and amendments to existing legislation such as the Bank Company Act.

The regulator also injected fresh funds into weak banks to protect depositors.

However, the treatment has been entirely different for struggling NBFIs. Since the interim government took office in early August last year, no visible initiatives have been taken to reform the ailing sector.

The central bank has also refrained from injecting funds to revive the NBFI sector and help companies repay depositors.

Following the political changeover, more than half a dozen banks were unable to repay depositors, prompting the central bank to inject over Tk 25,000 crore into weak banks by printing money.

Justifying this move, BB Governor Ahsan H Mansur said it was necessary to maintain depositor confidence.

This raises a simple but important question: if banks receive central bank funds to protect depositors, why are weak NBFIs denied similar support?

Institutional and individual depositors of over a dozen NBFIs, including People's Leasing, International Leasing, Union Capital, FAS Finance, Aviva Finance, Fareast Finance, and First Finance, are still struggling to recover their deposits. For instance, Khalil Ahmed Khan, a depositor at Aviva Finance, has not received his full deposit despite it maturing on January 21 this year.

He told The Daily Star that he invested Tk 23 lakh in three fixed deposit receipts (FDRs) on January 21, 2024. Despite repeated requests, the company has repaid only Tk 8.98 lakh, while Tk 14.01 lakh remains unpaid.

Many other desperate depositors visit weak NBFIs daily, only to return empty-handed.

The Bangladesh Leasing and Finance Companies' Association (BLFCA), a forum of non-bank financial institutions, has met with the BB governor twice but has yet to receive any commitment regarding liquidity support for weak NBFIs.

Md Golam Sarwar Bhuiyan, managing director of Industrial and Infrastructure Development Finance Company Ltd and former chairman of the BLFCA, told The Daily Star that the central bank informed them it is currently prioritising banking sector reforms.

According to Bhuiyan, NBFI sector reforms will begin once banking reforms are completed.

But Mohammad Rafiqul Islam, managing director of United Finance, believes reforms to both the sectors can run simultaneously. He urged the central bank to extend its focus to ensure depositors recover their funds.

Akin to weak banks, Midas Finance Managing Director Mustafizur Rahman said most NBFIs require liquidity support from the central bank.

Meanwhile, central bank officials maintain that banking sector reforms are crucial for economic stability. However, they assure that a mega reform plan for the NBFI sector is in the pipeline.

"Now is the time to initiate NBFI sector reforms," Fahmida Khatun, executive director of the Centre for Policy Dialogue, told The Daily Star.

She highlighted severe governance issues in the sector, stressing the need for stricter rules and regulations to strengthen governance.

The economist also recommended that regulators conduct audits of NBFIs, similar to banks, to assess their actual financial health.​

 

[Saif]

Tk 41,129cr bad loans written off by 10 banks

The top 10 banks in Bangladesh have collectively written off Tk 41,129 crore in bad loans by the end of December 2024, accounting for nearly half of the total written-off loans in the banking sector, according to Bangladesh Bank data.

www.newagebd.net

Tk 41,129cr bad loans written off by 10 banks
Mostafizur Rahman 05 April, 2025, 23:24

The top 10 banks in Bangladesh have collectively written off Tk 41,129 crore in bad loans by the end of December 2024, accounting for nearly half of the total written-off loans in the banking sector, according to Bangladesh Bank data.

Banks typically resort to loan write-offs when they determine that the chances of recovering the money lent are practically nil, banking experts said.

Written-off bad loans have increased due to a higher rate of non-performing loans and write-off policy relaxation by the central bank in February 2024, they said.

The top state-owned bank, Sonali Bank, alone wrote off Tk 8,568 crore, followed by Agrani Bank writing off Tk 5,627 crore, Janata Bank Tk 5,126 crore and Bangladesh Development Bank Limited Tk 2,968.89 crore.

Among the private sector banks, Southeast Bank wrote off Tk 3,664 crore, United Commercial Bank Tk 3,197 crore, Prime Bank Tk 3,184.76 crore, The City Bank Tk 3,164.79 crore, BRAC Bank Tk 2,962.5 crore, and Bank Asia Tk 2,664 crore.

As of December 31, 2024, the total volume of outstanding written-off loans in the banking sector stood at Tk 81,578 crore, marking a sharp increase from Tk 53,612 crore a year earlier.

Of the total amount written off by the end of 2024, state-run banks wrote off Tk 25,832 crore and private commercial banks Tk 52,780 crore.

Nine foreign banks operating in Bangladesh wrote off Tk 2,353 crore in total, with Standard Chartered Bank accounting for nearly half of that amount -- Tk 1,139 crore.

The practice of writing off loans allows banks to remove irrecoverable debts from their balance sheets, transferring them to off-balance sheet records, banking experts noted.

While this accounting maneuver presents a healthier financial picture on paper, the underlying liabilities remain unresolved, raising concerns about the long-term stability of the banking system, they observed.

The surge in write-off loans, however, raised critical questions about the banks’ loan approval processes, risk management practices, and political interference, they further observed.

The relaxed loan write-off policy came on February 19, 2024, when the Bangladesh Bank — under the influence of the previous Awami League-led government — eased the write-off guidelines.

According to the revised rules, banks can now write off loans classified as ‘bad and loss’ after just two years of default, down from three years previously.

This followed a 2019 policy change, which had already reduced the timeframe from five years to three.

Additionally, banks no longer need to file a case with the Artha Rin Adalat (Money Loan Court) for writing off defaulted loans below Tk 5 lakh, raising the threshold from Tk 2 lakh.

By lowering the write-off barrier, the central bank essentially provided banks with a tool to mask their deteriorating asset quality rather than confront it.

Surprisingly, the policy still exists even after the political shift on August 5, experts said.

Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue, said that the loan write-off policy needs tightening, especially considering the leniency that was introduced earlier in 2024.

He said that the Bangladesh Bank must undertake a comprehensive review of the policy to identify its flaws and enact necessary reforms to prevent the situation from worsening.

He also emphasised that banks must focus more seriously on recovery efforts if they are to regain public trust and stabilise their financial base.

The ever-increasing volume of written-off loans is a direct consequence of banks’ failure to pursue recovery effectively, BB officials said.

‘Once a loan is written off, most banks stop meaningful follow-up efforts to recover the dues. This has created a perverse incentive for willful defaulters, who now find it even easier to escape the consequences of defaulting,’ they said.

Non-performing loans surged dramatically in 2024, reaching Tk 3.45 lakh crore by year’s end — up from Tk 1.45 lakh crore in December 2023.

The NPLs grew rapidly each quarter in 2024: Tk 1,82,295 crore in March, Tk 2,11,391 crore in June, and Tk 2,84,977 crore in September.

Nearly 20 per cent of all loans in the banking sector —amounting to Tk 17.11 lakh crore — were classified as non-performing by the end of the year, indicating for Bangladesh the highest NPL ratio in South Asia.

A draft white paper released on December 2, 2024 further revealed that the total distressed assets —including NPLs and rescheduled, restructured, written-off, and litigated loans — had exceeded Tk 6.75 lakh crore.

The situation has put tremendous pressure on banks’ profitability and liquidity.

As most of their income comes from interest on performing loans, the erosion of loan quality severely limits their revenue generation.

Banks are now forced to maintain higher provisions against defaulted loans.

According to Bangladesh Bank regulations, provisions range from 0.25 to 5 per cent for unclassified loans and rise sharply to 20 per cent for substandard, 50 per cent for doubtful, and 100 per cent for bad or loss category loans.

Besides the top 10 banks, Pubali Bank wrote off bad loans amounting to Tk 2,463 crore, Uttara Bank Tk 2,446 crore, AB Bank Tk 2,304.73 crore, National Bank Tk 2,154 crore, IFIC Bank Tk 2,144.86 crore, Dutch-Bangla Bank Tk 2,096.80 crore, One Bank Tk 2,072 crore, and Eastern Bank Tk 2,018.75 crore.​

 

[Saif]

Can ‘bridge banks’ act as a ‘financial ambulance’ for ailing banks?

Bangladesh’s banking sector, once celebrated for its contribution to economic growth, is currently facing a crisis. The sharp increase in non-performing loans (NPLs), severe liquidity issues, and persistent governance scandals have placed several banks on the brink of failure. This precarious...

www.thedailystar.net

Can ‘bridge banks’ act as a ‘financial ambulance’ for ailing banks?

Bangladesh's banking sector, once celebrated for its contribution to economic growth, is currently facing a crisis. The sharp increase in non-performing loans (NPLs), severe liquidity issues, and persistent governance scandals have placed several banks on the brink of failure. This precarious situation not only threatens the stability of the financial system but also undermines public trust. In such a challenging environment, the concept of "bridge bank" emerges as a potential solution.

The crucial question is: can "bridge banks" truly rescue Bangladesh's troubled banking sector?

The challenges besetting Bangladesh's financial landscape are serious and widespread. Non-performing loans, often worsened by politically motivated lending practices and inadequate credit management, have reached concerning levels, with the NPL ratio ranking among the highest in South Asia. Many banks are also grappling with significant capital shortages, failing to meet the minimum capital requirements set by regulatory authorities. These financial troubles are aggravated by significant governance issues. Insider lending, a lack of transparency, and high-profile scams have seriously damaged public confidence in the banking system. This creates a harmful cycle: as banks struggle to manage their operations, depositor trust declines, which in turn destabilises the entire financial ecosystem.

This is where "bridge bank" comes into play. This temporary institution is designed to take over the operations of distressed banks, essentially acting as a "financial ambulance" that stabilises these failing entities until a long-term solution—whether it be restructuring, sale, or liquidation—can be achieved. Normally established by central bank or regulatory authorities, a "bridge bank" aims to protect depositors, maintain essential banking services, and reduce systemic risks.

The advantages of "bridge banks" for Bangladesh is significant. By stepping in to manage troubled banks, it can prevent sudden collapses, ensuring that customers continue to have access to their funds and banking services. This continuity helps maintain public confidence during turbulent times. Additionally, a "bridge bank" can safeguard depositors' funds during crises, reducing the risk of panic withdrawals and bank runs. It also creates necessary time and framework for restructuring distressed banks, including recapitalisation, governance improvements, and management of non-performing assets. Most importantly, by isolating failing banks from the broader financial system, a "bridge bank" can prevent the crises from spreading to healthier institutions, thereby protecting the overall banking sector.

However, the introduction of a "bridge bank" in Bangladesh presents a distinct set of challenges. A strong legal and regulatory framework is vital for ensuring successful outcomes. While the proposed "Bank Resolution Ordinance" is a positive step forward, it requires transparent execution free from political interference to be effective. Setting up and managing a "bridge bank" needs considerable financial resources, meaning they will require backing from the government, international institutions, and contributions from other banks.

Good governance and transparency in managing a "bridge bank" is also crucial. Without proper oversight, there is a risk of mismanagement or misuse of resources, which could further erode public trust. Moreover, there is the moral hazard; banks may adopt reckless behaviour, believing that they will be shielded by a "bridge bank". This highlights the necessity for stringent regulatory oversight.

Globally, the "bridge bank" model has proven effective in addressing banking crises. During the 2008 financial crisis in the United States, for instance, the Federal Deposit Insurance Corporation employed a "bridge bank" to manage failing institutions like IndyMac Bank, ensuring the continuity of services and protection for depositors. Similar results have been observed in countries like Portugal, Italy, and India, where "bridge banks" played a key role in stabilising troubled banks and restoring public confidence in the financial system.

While a "bridge bank" may not be the panacea for all the issues facing Bangladesh's banking sector, it presents a promising avenue for addressing its challenges.

The author is a former managing director and CEO of a first-generation private bank in Bangladesh.​

 

[Saif]

Islamic problem banks to merge in two large banks

Bangladesh's Islamic-banking sector will be restructured with planned merger of the weakened and struggling ones of the lenders into two large banks to restore stability. Bangladesh Bank Governor Dr Ahsan H Mansur Wednesday announced the plan, now that there have been wide-ranging reforms launch

thefinancialexpress.com.bd

Islamic problem banks to merge in two large banks
BB governor places plan on restructuring Islamic banking sector to restore stability
FE Report
Published :
Apr 09, 2025 23:44
Updated :
Apr 09, 2025 23:44

Bangladesh's Islamic-banking sector will be restructured with planned merger of the weakened and struggling ones of the lenders into two large banks to restore stability.

Bangladesh Bank Governor Dr Ahsan H Mansur Wednesday announced the plan, now that there have been wide-ranging reforms launched in the country by the post-uprising interim government, including in financial sector.

"Most Islamic banks are in trouble. We plan to restructure the sector and consolidate it into two large banks," he said while inaugurating the 10th Annual Banking Conference 2025, hosted by Bangladesh Institute of Bank Management (BIBM).

He notes that there is currently one large Islamic bank and several smaller ones -- many in distress. And weaker banks would likely be merged with the stronger ones.

Mansur acknowledges the absence of a dedicated legal framework for Islamic banking, saying, "There is a regulatory gap, and we are working to address it, aligning with international standards."

Issuing a strongly worded warning to money-launderers, the Governor said the central bank is spearheading a multi-agency initiative to recover funds siphoned off abroad -- especially during the previous government's tenure --through the banking channel.

"Both legal and ethical measures are required. Life will be made difficult for those who laundered money, so that nobody follows suit in the future," he said.

"Even if we fail to recover all the laundered money, we will ensure those responsible face immense difficulties."

He stresses that the central bank is firmly committed to tackling illicit financial flows and calls for cooperation from all stakeholders.

Highlighting regulatory reforms, Mansur said Bangladesh Bank had recently dissolved boards of several underperforming banks to protect depositors' interests.

"If a bank's board fails to function within the regulatory framework, we will intervene -- forcefully, if needed. The message is loud and clear."

He notes that amendments to the Bank Company Act 2023 aim to improve governance, ensure proper board formation, and enforce stricter 'fit and proper' criteria for directors.

The Governor also calls for further amendments to the Bangladesh Bank Order to enhance the institution's autonomy and establish a unified regulatory framework for both public and private banks.

He feels that despite political changes, reforms must continue, and central bank autonomy must be preserved.

On digital banking, Mansur said licensing terms are being revised to promote small and nano-loans, aligning with broader financial-inclusion goals.

He mentions rapid expansion of mobile-financial services, with Nagad hitting a record transaction volume last month and average daily MFS transactions reaching Tk 5,000 crore.

He told the meet of bankers that capital-deficient banks would be gradually brought from negative to positive capital levels, potentially aided by political stability.

In the keynote presentation, Grameen Bank Chairman and North-South University Vice-chancellor Prof Abdul Hannan Chowdhury urged structural reforms and ethical leadership to rebuild public confidence in the banking sector.

He has identified persistent challenges -- such as weak oversight, rising non-performing loans (NPLs), and liquidity stress -- and advocated for aggressive technological adoption and institutional reform.

Citing successful blockchain pilot projects by Standard Chartered, HSBC, Prime Bank, and bKash in LC settlements, Prof Hannan said the technology can help curb trade-based money laundering which accounts for 75 per cent of illicit financial outflows.

He recommends using AI for CMSME credit scoring, adopting Robotic Process Automation (RPA) for compliance, and developing crowd-funding regulations for startups.

To address governance issues, he proposes a Bangladesh Bank-managed pool of independent directors and institutionalized performance-based board evaluations.

He also called for constitutional safeguards to ensure central bank independence, real-time IT-based supervision tools, and better coordination between fiscal and monetary policies.

To recover bad loans, he suggests establishing a special tribunal and an asset- management company, along with independent international audits to verify financial disclosures and detect "window-dressing".

Bangladesh Association of Banks (BAB) Chairman Abdul Hai Sarker stressed that customer trust is central to the sector's turnaround. "The real owners of banks are the customers. Without their confidence, the sector cannot recover."

He appreciated the conference as a platform for sharing reform strategies and governance improvements by regulators and industry leaders.

BIBM Director-General Md Akhtaruzzaman highlighted the need for inclusive digital transformation. "While the sector has seen major transformation over the past decade, digitalization must ensure no one is left behind -- financial inclusion remains our top priority," he said.​

 

[Saif]

Defaulted bank loans in Bangladesh and the IMF

Bangladesh was supposed to implement its new loan reclassification policy as of first April. Now it seems that because of the vulnerabilities of the banking sector, Bangladesh Bank will renegotiate the programme with the International Monetary Fund (IMF), a mission of which is in the capital now. T

thefinancialexpress.com.bd

Defaulted bank loans in Bangladesh and the IMF
Selim Jahan
Published :
Apr 11, 2025 00:12
Updated :
Apr 11, 2025 00:12

Bangladesh was supposed to implement its new loan reclassification policy as of first April. Now it seems that because of the vulnerabilities of the banking sector, Bangladesh Bank will renegotiate the programme with the International Monetary Fund (IMF), a mission of which is in the capital now. The new policy would declare a loan as defaulted, if it is not paid within three months of the due date. Earlier, the time limit was six months. The new loan classification policy is consistent and compatible with the global Basel III Banking Regulatory Policy. Bangladesh initially agreed to implement this new loan reclassification policy as a condition for the $2.7 billion loan that it received from the IMF in 2023.

Bangladesh is not alone in requesting a postponement in the implementation of the Basel III Banking Regulation Policy. The United States (US), the United Kingdom (UK) and the European Union (EU) have also requested for more time in implementing this policy. The United States will start its implementation from July this year with a three-year transitional period. The European Union will also delay the process so that their medium-sized banks are not under pressure. All these events may strengthen the position of Bangladesh with regard to the renegotiation of its loan reclassification policy.

Currently, the amount of defaulted loans is on the rise in the Bangladesh economy. At the end of 2024, defaulted loans of the country stood at 20 per cent of the total disbursed loans. Only a year ago, in 2023, the ratio was 8 per cent. During the period 2023 -2024, the defaulted loans in Bangladesh have increased by Tk 2 trillion, bringing its total to Tk 3.6 trillion by end-December, 2024. The Bangladesh Bank projects that the ratio of defaulted loans in the country may rise up to 30 per cent of the total disbursed loans, and in absolute terms, it may surpass Tk 5 trillion. A weak regulatory framework, persistent inefficiency in the financial system, illicit money laundering and capital flight have all contributed to increases in defaulted loans in the country.

The increases in the defaulted loans may impede the implementation of the new loan reclassification policy of the Bangladesh Bank. If the country returns to the global definition of defaulted loans, the defaulted amounts may rise, and it may be more difficult to conform to the IMF conditionalities. The IMF conditionalities require Bangladesh to decrease the ratio of defaulted loans to total disbursed loans to 10 per cent for public banks and to 5 per cent for the private banks. All these are linked to the February 5 release of the third tranche of the IMF loans. That date has been postponed without any explanation.

On the other hand, because of the deterioration of the country's banking sector's asset quality, Moody has downgraded its rating of the future of the banking sector of Bangladesh. Further tough loan classification policy will make the current situation more complex. Given the country's economic sluggishness and its high inflation, a higher number of entrepreneurs may not be able to pay off their debts.

In fact, in 2012, Bangladesh adopted the global standard for loan reclassification to identify the country's defaulted loans. According to that standard, if after three months of the stipulated time, a loan is not paid off, that becomes a defaulted loan. But in 2019, that standard was relaxed and the relevant dead line for loan repayment was extended from 3 to 6 months. But in reality, the debtors used to get about 9 months to repay their loans. Furthermore, in 2012, because of the policy of refixing of the time period for repayment of loans, the defaulters could reclassify their loans for three successive times. That process helped the defaulters to hide their bad assets.

There were, however, many reasons for such phenomena. But the biggest reason was to provide undue and illegal advantages under the state patronage to a few vested interest groups. With the state saving their backs, these interest groups used the banks as their private coffers. By breaking the rules and regulations of all economic disciplines, they dominated the management boards of different banks, controlled the management structures of these financial institutions. And as such, they institutionalized a permanent system of stealing money and money laundering from the banking system, where there were no structures of transparency and accountability. There were dual outcomes of the process - non-repayments of loans amounting crores of taka and laundering abroad the money and resources representing the defaulted loans.

There is no doubt that because of all these deviations, huge amounts of defaulted loans could be hidden on paper, but ultimately, it devastated the financial wellbeing of the country. As a result, during the last decade, 10 banks were on the verge of collapse. Along with it, billions of taka were laundered outside the country. In spite of all these wrong-doings, the foreign credit rating institutions did not downgrade the rating of our financial institutions. Yet, because of the rapid soaring of defaulted loans as well as the ensuing tough implementation of the policies, in future, there may be downgrading of these ratings. The outcome of the Bangladesh-IMF negotiations will have an important impact of the future stability on our financial system. Balancing between the rules and regulations of the regulatory system and the economic realities on the ground would represent a big challenge for Bangladesh.

Dr Selim Jahan is former Director, Human Development Report Office and Poverty Division, United Nations Development Programme (UNDP), New York, USA.​

 

[Saif]

Govt approves ordinance to prevent bank fund looting: Adviser Rizwana

The Advisory Council has approved the Bank Resolution Ordinance to bring order to the banking sector and prevent money looting, said Environment Adviser Syeda Rizwana Hasan on Thursday. “You know how money was looted by one industrial group that had established a monopoly on several banks. T

thefinancialexpress.com.bd

Govt approves ordinance to prevent bank fund looting: Adviser Rizwana
Published :
Apr 17, 2025 18:43
Updated :
Apr 17, 2025 18:43

The Advisory Council has approved the Bank Resolution Ordinance to bring order to the banking sector and prevent money looting, said Environment Adviser Syeda Rizwana Hasan on Thursday.

“You know how money was looted by one industrial group that had established a monopoly on several banks. The ordinance was approved to prevent these, to bring discipline in banking and corporate sectors and to secure interest of depositors,” she said while briefing reporters at the Foreign Service Academy in the capital, UNB reports.

Earlier in the day, a meeting of the Advisory Council was held at the Chief Adviser’s Office in Tejgaon with Chief Adviser Prof Muhammad Yunus in the chair.

A committee has been formed to start an investigation and ensure the punishment of those involved in financial crimes, Rizwana added.

Several other ordinances were also approved, including those related to revenue policy and management and amendments to the Grameen Bank Ordinance, she said.

Several key changes will be brought in the Code of Civil Procedure (CPC) as part of implementing the recommendations made by the Judicial Reform Commission, said Rizwana.

She said the outdated judicial procedures will be modernised.

“Execution will be included within the judgment itself, so no separate verdict will be required. Summonses will be issued through telephone and SMS, while accused persons will be notified via email and WhatsApp once a case is filed,” the adviser said.

"Referring to the Grameen Bank Ordinance, Rizwana stated that Chief Adviser Professor Muhammad Yunus had been politically targeted by the regime in power at the time."

The previous government had established its control over Grameen Bank but the new law will designate it as a public-interest institution, she said.​

 

[Saif]

World Bank flags deepening crisis in banking sector

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

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World Bank flags deepening crisis in banking sector

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REFORM INITIATIVE BY THE INTERIM GOVT

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

World Bank recommends 10 steps to mitigate bank sector risks

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

en.prothomalo.com

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

The World Bank File Photo

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

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

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

Strengthen bank resolution framework

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

Strengthen the deposit protection system

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

Strengthen corporate governance and risk management

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

Reform of state-owned banks

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

Implement a robust NPL management framework

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

Enact a comprehensive bankruptcy and insolvency law

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

Enhance the enforcement of banking regulations and supervision

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

Establish emergency liquidity assistance framework

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

Adopt intl best practices in bank regulation and supervision

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

Strengthen the independence of Bangladesh Bank

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

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

 

[Saif]

Is merger of Islamic banks a viable solution?

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

www.thedailystar.net

Is merger of Islamic banks a viable solution?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Banks witness steady growth in deposits

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

www.newagebd.net

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

New Age file photo

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Carry out thorough reforms in banking sector

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

thefinancialexpress.com.bd

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Banks in disarray to finalise financial statements

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

en.prothomalo.com

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

Photo shows customers receiving services at a bank. File photo

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

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

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

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

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

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

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

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

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

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

Banks in trouble

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

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

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

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

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

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

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

Banks that finalised financial statements

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

 

[Saif]

19 banks suffer record capital shortfall of Tk 1.71 lakh crore

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

www.newagebd.net

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

New Age photo

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Climate shocks and banking sector

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

thefinancialexpress.com.bd

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Any bank, nonbank can go under state ownership temporarily

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

thefinancialexpress.com.bd

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Empowering central bank with sweeping powers

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

thefinancialexpress.com.bd

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

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

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

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

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

 

[Saif]

Cenbank governor says market to set dollar rate

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

thefinancialexpress.com.bd

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

Bangladesh Bank Governor Dr Ahsan H Mansur -- File Photo

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

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

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

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

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

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

 

[Saif]

Data-driven lending solution for Bangladeshi banks

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

www.thedailystar.net

Data-driven lending solution for Bangladeshi banks

File photo: REUTERS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

A clean slate for BD's banks?

The numbers are ugly. Bangladesh's non-performing loans (NPLs) have exploded to over Tk 3.45 trillion by the end of 2024. When you include restructured and written-off loans, the bad asset mountain rises to a staggering Tk 4.75 trillion-about a third of all outstanding loans. That's not just bad. I

thefinancialexpress.com.bd

A clean slate for BD's banks?
Seyed Mosayeb Alam

Published :
May 22, 2025 00:01
Updated :
May 22, 2025 00:01

The numbers are ugly. Bangladesh's non-performing loans (NPLs) have exploded to over Tk 3.45 trillion by the end of 2024. When you include restructured and written-off loans, the bad asset mountain rises to a staggering Tk 4.75 trillion-about a third of all outstanding loans. That's not just bad. It's catastrophic. The banks are choked. The economy is stalled. And trust? It's on life support.

So here comes the cavalry: a government-backed Special Purpose Vehicle (SPV)-a "bad bank" of sorts. Think of it like a janitor for the banking system, sweeping up toxic corporate loans so the banks can breathe again. But this isn't just about cleaning up a mess. It's about rewriting the rules of the game, once and for all.

Let's break down why this bad bank could be the game-changer we need-and what needs to go right.

A Smart, Surgical Strike on Big Loans. This isn't a blanket bailout. The bad bank will target large corporate loans, the ones dragging multiple banks down with them. We're talking exposures above Tk 100 crore-loans that were "evergreened" or rescheduled so many times they've become zombie assets. These are the big fish that jam the gears of the banking machine. By taking them off the books, banks can finally start lending again. SMEs and manufacturers, long deprived of credit, might finally get a break.

Built for Recovery, Not Rescue. The bad bank isn't just a dumping ground. It's designed to recover value. Loans will be bought at steep discounts, not face value. Banks will get a small cash payment upfront-say 15per cent -and the rest as security receipts. They only cash out if the bad bank recovers the loan. That means everyone has skin in the game. No free lunch. No moral hazard. Just focused, performance-driven resolution.

Governance With Teeth (If We Dare to Bite). The biggest risk? Politics. Elite borrowers, connected insiders, and rent-seekers have feasted on our banks for decades. If the bad bank becomes just another toy in their arsenal, we're done. That's why its board must be independent, its mandate legally protected, and its operations transparent. Borrowers who defaulted deliberately should be barred from buying back their assets at discounts. That trick worked in India under the amended Insolvency and Bankruptcy Code-and it should work here too.

Real Economic Uplift, Not Just Optics. The bad bank isn't just a fiscal maneuver. It's an economic stimulus in disguise. By freeing up bank capital, credit-to-GDP could rise from 45per cent to 50 per cent, according to simulations. That's no small feat. A one-point rise in credit-to-GDP can lift investment by 0.7 per cent. That means factories restarting, SME financing doubling, and sectors like construction and manufacturing bouncing back. For an economy desperate to grow, this is rocket fuel.

Of course, the road ahead is littered with landmines. Let's not kid ourselves. If the bad bank overpays for junk loans, we're handing a quiet bailout to the same banks that let this happen. If politicians interfere in recoveries, the whole thing collapses. And if defaulters are allowed to return through the backdoor, we might as well close shop and call it a day.

But here's the twist: we don't need to invent anything new. We just need to take inspiration from what's worked. Malaysia's Danaharta. Ireland's NAMA. India's NARCL. All of them used structure, pricing discipline, and legal power to recover billions. Bangladesh can do the same-if we have the political will.

Let's not forget: this bad bank isn't forever. It should have a sunset clause. A clear timeline. A mission that ends. That keeps it lean, focused, and honest. No bloated bureaucracy. No second coming of Biman-style state inefficiency.

And when the cleanup is done? Then comes Act II. We must fix the root causes: better governance, tighter regulation, stronger loan classification rules, and early warning systems. Otherwise, this whole effort will just buy time for the next disaster.

So, is this our last shot?

Possibly.

If done right, this bad bank could mark the start of a financial renaissance. If done wrong, it'll be just another headline in the long obituary of Bangladesh's banking sector.

Let's choose wisely.​

 

[Saif]

Banks snapping up windfall from gaping interest spread

Banks are bagging a windfall from gaping spread between lending and deposit interest rates that banking experts dub a violation of relevant guidelines and international best practices. On an ascent in a pickup from a descent two years back, the interest-rate spread for banks recorded a significa

thefinancialexpress.com.bd

Banks snapping up windfall from gaping interest spread
Spread between lending, deposit rates rose to 5.87pc in March on an ascent from a descent

Jasim Uddin Haroon
Published :
May 24, 2025 00:53
Updated :
May 24, 2025 00:53

Banks are bagging a windfall from gaping spread between lending and deposit interest rates that banking experts dub a violation of relevant guidelines and international best practices.

On an ascent in a pickup from a descent two years back, the interest-rate spread for banks recorded a significant rise in March 2025, indicating a potential rise in their profitability.

The spread between the weighted average interest rate (WAIR) on advances and deposits for all banks increased by seven basis points to 5.87 per cent in March, compared to the previous month. This level was last seen in October 2024, according to Bangladesh Bank data.

In contrast, nonbank financial institutions (NBFIs) saw a reversal of their fortunes as their spread shrank.

The spread between the WAIR on advances and deposits for NBFIs fell by three basis points to 3.18 per cent in March.

Both banks and nonbanks experienced a rise in their average deposit rates during the month, in a rebound. The WAIR on deposits rose to 6.17 per cent for banks and 10.61 per cent for NBFIs in March last.

Similarly, the WAIR for both banks and NBFIs on advances also increased. For banks, it climbed to 12.04 percent, for NBFIs, it reached 13.79 per cent that month.

In the meantime, the spread between WAIR on advances and deposits for SMEs and large industries increased 6.26 per cent and 6.24 per cent respectively, while in agriculture and services decreased to 5.66 per cent and 6.60 per cent in March compared to the previous month.

"It is unusual. It is too much. The high gap shows that banks are ultimately benefiting," says Shah Md Ahsan Habib, a professor at the Bangladesh Institute of Bank Management (BIBM).

He notes that borrowers are the losers in a high-interest regime, while depositors appear to benefit.

"But, even depositors are not gaining as much as expected under the current high-interest environment. Banks are making more money," the banking professor and researcher told the FE.

Mr. Habib notes that ideally, the interest-rate spread should range between 3.0 and 4.0 per cent-at the most, 5.0 per cent.

He stresses that well-performing banks, in particular, should maintain a lower spread.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank PLC, a privately-owned commercial bank, echoes the observations.

He says the wide spread between deposit and lending rates suggests higher income for financial institutions.

However, he says not all of this income translates into profitability.

"Many banks are required to make substantial provisioning for their rising non-performing loans (NPLs)," he points out.

Mr. Rahman cites that as many as 19 banks failed to distribute dividends last year, despite enjoying a favourable spread.

The senior banker mentions that some banks have raised interest rates on fixed deposits-offering up to 11.5 per cent for three-month tenures-to attract funds as they need the money.

"In the current environment, savers are increasingly looking for financially sound banks to park their money," says Mr. Rahman.

He also notes that a growing number of individuals are investing in government treasury bonds to benefit from high interest while avoiding risk.

On the other hand, economists warn that a high spread can hurt both depositors and borrowers.

Dr. Monzur Hossain, a member of the General Economics Division, feels that in developing countries like Bangladesh, the spread should ideally not exceed 5.0 per cent.

"The optimal range would be 4.0 to 4.5 per cent, in line with international best practices," he says.

He mentions that a wider spread indicates inefficiencies in the financial sector.

"It shows that banks are relying heavily on interest income. A rational and efficient spread should be maintained," Hossain says.

The spread, which dropped to 2.93 per cent in June 2023, went on the ascent again after July 2023, when the Bangladesh Bank removed the 9.0-percent lending-rate cap and introduced the Six-Month Moving Average Rate of Treasury Bills (SMART) as a new benchmark for pricing loans.​

 

[Saif]

BB closely monitoring activities of reconstituted bank boards

Bangladesh Bank (BB) Governor Ahsan H Mansur on Thursday said the central bank is closely monitoring the activities of reconstituted bank boards and will intervene if necessary. He warned that unless stricter classification rules are introduced, non-performing loans (NPLs) could rise to 30 per cen

thefinancialexpress.com.bd

BB closely monitoring activities of reconstituted bank boards
FE REPORT
Published :
May 23, 2025 10:52
Updated :
May 23, 2025 10:52

Bangladesh Bank (BB) Governor Ahsan H Mansur on Thursday said the central bank is closely monitoring the activities of reconstituted bank boards and will intervene if necessary.

He warned that unless stricter classification rules are introduced, non-performing loans (NPLs) could rise to 30 per cent.

"We are going to change the classification rules and make them stricter," he said, adding that the central bank is planning fundamental reforms to the Bank Company Act.

Speaking at the 22nd Nurul Matin Memorial Lecture on Ethics in Banking, the governor said, "We are trying to introduce a provision that limits the number of board members from a single family to two and limiting their tenure as well."

The annual event was organised by the Bangladesh Institute of Bank Management (BIBM) on its campus.

Mr Mansur acknowledged that political support will be essential to implement the necessary banking sector reforms.

He criticised the previous regime for fostering a culture of unethical practices, which left the sector in poor shape. "We are trying to correct those wrongs," he said.

He also noted that restructuring weak banks would be a major challenge.

"Some may go into liquidation, and others may need to be merged," the governor said, adding that the central bank is considering appointing foreign experts to facilitate the process.

M Kabir Hassan, a finance professor in the Department of Economics and Finance at the University of New Orleans in the US, delivered the keynote lecture titled "Roots and Repercussions: Unravelling the Ethical Crisis in Bangladesh's Banking Sector."

He identified political interference, collusion, corruption, and weak governance as the key drivers of financial instability in Bangladesh's banking sector.

The professor cited major banking scandals - such as those involving BASIC Bank, Farmers Bank, Sonali Bank, and Islami Bank Bangladesh - to highlight unethical practices like politically influenced loan approvals, wilful defaults, and regulatory negligence.

"These failures have eroded public trust, destabilised the economy, and disproportionately affected small businesses and rural borrowers," he said.

He underscored the need for stronger penalties, independent anti-corruption watchdogs, and enhanced whistleblower protections to address the crisis.

Besides, the professor warned that the consequences of the banking sector's ethical failures include economic instability, reduced foreign investment, rising unemployment, inflationary pressure, and diminished public confidence.

BB Deputy Governor Nurun Nahar and BIBM Director General Dr Md Akhtaruzzaman also spoke at the event.​

 

[Saif]

Karmasangsthan Bank’s business development meeting held in Rangpur

Business Development Meeting-2025 was held on Friday at Begum Rokeya Auditorium, RDRS, Rangpur, with the participation of Regional Managers, Branch Managers and Second Officers of Rangpur and Dinajpur regions and Regional Managers, Branch Managers and Field Officers of Kurigram region of Karmasangs

thefinancialexpress.com.bd

Karmasangsthan Bank’s business development meeting held in Rangpur
FE ONLINE DESK
Published :
May 23, 2025 21:04
Updated :
May 23, 2025 21:04

Business Development Meeting-2025 was held on Friday at Begum Rokeya Auditorium, RDRS, Rangpur, with the participation of Regional Managers, Branch Managers and Second Officers of Rangpur and Dinajpur regions and Regional Managers, Branch Managers and Field Officers of Kurigram region of Karmasangsthan Bank.

Former Secretary and Chairman of the Board of Directors of Karmasangsthan Bank Dr. AFM Matiur Rahman attended as chief guest in the meeting. Managing Director Arun Kumar Chowdhury, General Manager of Audit Department of the Head Office Md. Amirul Islam were present as special guests, according to a press release.

The meeting was also attended by the DGM of Loan and Advance Department of the Karmasangsthan Bank Head Office Md. Moshiur Rahman, DGM of Loan Recovery Department, Md. Akhter Hossain Pradhan, and the DGM of the Branch Control Department, Monoj Roy. The meeting was presided over by the DGM of Rajshahi Divisional Office, Md. Mukhlesur Rahman.

In his speech, the Chief Guest advised everyone to distribute quality loans through proper customer selection. He also called on everyone to strive to achieve 100 per cent of the business targets in the remaining period of the fiscal year. He also advised everyone to work with honesty and integrity.

In his speech, the Managing Director emphasized on achieving 100 per cent loan disbursement and loan recovery as well as achieving the target of recovery rate against recoverable loans including defaulted loans, classified loans. Stating that the working days in the current fiscal year are very short, he advised to fill the deficit in all indicators through hard work in these few days.​

 

[Saif]

Reviving Bangladesh’s banking sector: A race against time for innovation and reform

Modern, reliable, technologically advanced banks might be the engines for Bangladesh's next development boom.

www.thedailystar.net

Reviving Bangladesh’s banking sector: A race against time for innovation and reform

FILE VISUAL: SHAIKH SULTANA JAHAN BADHON

Once a foundation of economic development, Bangladesh's banking industry is on the verge of becoming its Achilles heel. Crushing non-performing loans (NPLs), poor governance, and stagnant innovation undermine confidence, limit credit expansion, and threaten financial stability. If dramatic changes are not sought, the country may lose one of its main tools for maintaining long-term economic development.

Per the Bangladesh Bank data, NPLs constituted 20.20 percent of all outstanding loans by the end of 2024—well over the safe level of five percent, as advised by the International Monetary Fund (IMF). By June this year, the ratio is likely to rise to 30 percent, the central bank says. Although they own less than 30 percent of the banking assets, state-owned commercial banks are responsible for more than 45 percent of problematic loans. Unresolved vulnerabilities might reduce Bangladesh's GDP growth, compromising its aim for upper-middle-income status, according to the 2025 report of the World Bank.

Still, this approaching disaster is not unavoidable. It results from choices; better choices are still within reach if they are based on innovation and effective governance.

Bangladesh's banking system has historically depended on politically driven credit distribution and branch-based business lending. This model has now reached its limits. Less than 25 percent of Bangladeshi adults now have official credit access (The World Bank's Global Findex Database, 2021). As of December 2024, nearly 24 crore mobile financial service (MFS) accounts run outside the official banking network, according to the Bangladesh Bank.

The private sector, particularly SMEs, is hungry for reasonably priced capital. Stunting business and job growth, a 2023 IFC estimation projects a $2.8 billion MSME finance shortfall in Bangladesh. Simultaneously, poor loan allocation to large but high-risk borrowers is ballooning NPLs and severely damaging the banks' balance sheets. Following business as usual in this environment is useless and harmful.

While Bangladesh's financial administration deteriorated, a worldwide technology revolution was underway. At an unprecedented pace, mobile banking, AI-driven lending, blockchain trade finance, and open banking ecosystems are transforming financial institutions.

Between 2018 and 2022, branchless banking projects provided financial access to 60 million additional clients in Indonesia (World Bank, 2023). Mobile-first microloans under M-PESA expanded SME lending by 24 percent in Kenya over four years (GSMA, 2022). Bangladesh lags in this regard, despite the GSMA's projection (2022) of 63 percent smartphone penetration by 2025. Should banks neglect to adapt, they risk becoming irrelevant to the next generation of companies and customers. The danger is not theoretical; fintech sites already help millions of people who now find conventional banks sluggish, expensive, and inaccessible. Technology should help digitise current services and allow new goods to fit the changing market.

Three factors stand out as interesting:

* Microloans coupled with mobile wallets serve the informal and low-income sectors now left out of official financing.

* Supply chain financing helps SMEs, especially in the RMG and agricultural sectors, by unlocking liquidity for manufacturers and exporters.

* Green finance products encourage the acceptance of renewable energy sources, whereby worldwide investors are progressively channelling funds.

Banks that entered digital microcredit, embedded finance, and green lending enjoyed double-digit asset growth and decreased default rates globally (McKinsey Banking Review, 2023). The first banks to aggressively enter these products might restore Bangladesh's importance and profitability.

Still, without a hard reset in governance, technology and goods alone cannot save the industry.

The banking industry in Bangladesh is defined by weak risk controls, politicalised board nominations, and regulatory forbearance. These elements undermine depositors' trust, conceal big defaulters, and drive bad credit choices.

The reform package presented by the World Bank provides an unambiguous guide:

* Bank resolution frameworks should be improved.

* Stiffer deposit protection should be enforced.

* Expert, non-political board appointments should be specified.

* Specialist asset management companies (AMCs) should be launched to clean up NPLs methodically.

* Bankruptcy rules should be updated to hasten healing.

Vietnam provides a clear lesson: It reduced its NPL levels within five years after robust banking reforms in 2011 and revived private sector credit growth. Bangladesh has to be similarly politically courageous. Without governance improvement, no amount of digital innovation can reestablish public confidence—the lifeblood of banking.

Policymakers must build a regulatory climate that speeds up financial innovation beyond their own reform. It could include:

* Open banking in 24 months: letting clients safely communicate financial data encourages innovation and competitiveness.

* Starting a national fintech sandbox: allowing deliberate exploration driven by controlled testing of new digital items.

Bangladeshi banks now spend less than 0.1 percent of their revenue on cybersecurity, exposing systematic vulnerabilities (Deloitte, 2023). Early adopters of these models, like Singapore, India, and the UK, now find better, more inclusive banking environments. Bangladesh must act now or risk always falling behind its neighbours. Inaction comes at a very high cost. Every year of delay risks compounding NPLs, reducing SME access to capital, and increasing economic marginalisation. The societal fallout from lost employment, failed enterprises, and dashed hopes will eventually overwhelm the obvious financial issues of today.

Still, the benefits of action are great. Modern, reliable, technologically advanced banks might be the engines for Bangladesh's next development boom, fuelling investment, increasing inclusivity, and enabling entrepreneurship. The route chart is straightforward. The technology is available here. The institutional changes have had results. Only political will now separates Bangladesh's banking sector from renewal or irreversible decline. The time for hesitation is over.

Mamun Rashid, an economic analyst, is chairman at Financial Excellence Ltd and founding managing partner of PwC Bangladesh. He has served in senior roles at three global banks: ANZ, Standard Chartered, and Citibank, N.A.​

 

[Saif]

Legal amendments ready for BB autonomy: Governor

Necessary legal amendments are soon for central bank's autonomy and also for downsizing commercial banks' directorships under sweeping reforms that also envisage nationalisation of incurably ailing banks. Bangladesh Bank Governor Dr Ahsan H. Mansur unveils this plan of action in an exclusi

thefinancialexpress.com.bd

Six ailing banks destined for nationalisation
Legal amendments ready for BB autonomy: Governor
Number of directors, family directors to be curtailed, with shorter tenures

JUBAIR HASAN
Published :
May 27, 2025 00:51
Updated :
May 27, 2025 00:51

Necessary legal amendments are soon for central bank's autonomy and also for downsizing commercial banks' directorships under sweeping reforms that also envisage nationalisation of incurably ailing banks.

Bangladesh Bank Governor Dr Ahsan H. Mansur unveils this plan of action in an exclusive interview with The Financial Express (FE), dwelling at length on other far-reaching recast of the country's banking sector.

He said the central bank will start the process of nationalising six ailing commercial banks from July-August next under provisions of the recently introduced Bank Resolution Ordinance.

As part of the revival of the severely liquidity-crisis-ridden commercial lenders, the BB has already done asset-quality review and preview of different scenarios regarding the matching of the banks before official launch of the process of mergers and acquisitions of the problem banks.

Riding on direct cash-support by the banking regulator under the current interim government, the BB governor said, Islami Bank Bangladesh and United Commercial Bank have started rebounding well despite a significant portion of their balance sheets having been emptied through money laundering.

"I must give credit to the current management and their clients who did not lose their trust on the banks and returns. These two banks have come out of the problem and starts operating without any further support from the central bank after the initial feeding," he adds.

But liquidity crisis in most of the remaining banks is severe. There are banks where 87 per cent of the assets have been taken away during the Sheikh Hasina regime.

"How it is possible to do 100-percent servicing with 13-percent assets. No calculation will match it," Mr. Mansur, who took charge of the central bank leadership soon after the July-August mass uprising that toppled the Hasina government in 2024, says about the arithmetic of the banking mismatches.

To solve the problem and ensure full protection of the depositors in these banks, he noted, the regulator will come to intervene and nationalise them under the recently introduced Bank Resolution Ordinance which gives the central bank enough authority to place the incurable banks under state ownership as an ultimate cure.

Responding to a question, the central bank governor said they would start to apply the ordinance from July-August next on the green signal from the reigning interim government.

"We'll move forward for merger-acquisition or recapitalisation. But there is nothing to be worried. The banks will be revitalised through nationalisation to give further relief to the depositors."

He mentions that the Shariah-based banks, apart from Islami Bank Bangladesh, will be merged to form two large Islamic banks as part of sweeping reforms in the financial sector and they will bring potential investors as well.

When his attention was drawn to the unfruitful merger and acquisition moves taken by immediate-past governor Abdur Rouf Talukder under the Awami League regime, the governor said it was a miss-managed effort. There was no legal basis and power of the regulator to do so.

During that time, he recounts, the central bank used to fix who will merge with whom without doing proper asset review. "But we have completed asset-quality review of the banks. We know the value of the assets. We also make various scenario developments of the matching."

On the other hand, they have hired leading global consulting firms having enough experience of mergers and acquisitions and they will guide the regulator in structured way to do the critical tasks.

At the same time, the BB governor says, they are going to bring about major changes in the existing Bank Company Act as part of the ongoing reforms to ensure good governance in the financial sector.

The number of directors will be reduced. Family directorship in the banks will be curtailed to two in place of five and their tenure will be three years in each of two terms.

Now a family director can stay on the bank board twelve years in a row, according to the latest Bank Company Act amended in 2023.

"And 50 per cent of the directors must be independent and independent directors will be chosen from the BB's panel. You cannot appoint anyone you want," he further explains the recast plans.

However, if someone wants to nominate somebody from outside the panel and the nominated person is qualified and respectable, the central bank will approve it.

They will place the draft of the proposed amendment to the Bank Company Act to the chief adviser in July for securing the go-ahead.

Regarding independent functioning of the banking-regulatory body, Mr Mansur says they want to ensure autonomy of the central bank. As part of it, they will go for necessary revision of the Bangladesh Bank Order 1972.

He made it clear that every central bank of the world faces political pressure. Because of the fact, each developed country has put enough safeguards in place to overcome such external pressure.

"I can boldly say there is no external pressure on me. But those who will come later may face external pressure once the political government takes charge. Keeping this in mind, we want to bring reforms in the BB Order so that we can prevent the political pressure as an institution."

"We want to incorporate international best practices into the law and the draft is almost ready. It will also be discussed with the chief adviser in July", he said

Regarding the challenges of leaving the exchange rate to the market, the BB boss said many people feared the exchange rate would reach Tk 150 per dollar in the free-float regime but it didn't.

The central bank recently moved towards the market-centric regime and the exchange rate remained stable and hopefully it would remain so.

If anyone wants to destabilise the foreign-exchange market, the governor warns, they will be dealt with strictly. "There is enough supply of forex in the market thanks to a record inflow of remittance and steady export growth. Let the market go by its own force."

About the role of aggregators, he says they have to take the risk of leaving the exchange rate to be determined by the market. "The aggregators can quote any price they want but I won't buy. How many days they can hold dollars…maximum five working days. Because they will need taka to buy dollars, and for this, they will have to sell dollars."

There is no such vulnerability in the economy that will be able to pay external payments for seven days, even for a month. "Don't hope for gaining big margin like Tk 5 and Tk 10 a dollar. That will not happen," he tells possible dollar hoarders.

About central bank intervention in combating possible exchange-rate distortion, the governor says they kept an intervention fund of $500 million under the IMF lending programme and they don't want to use a single penny from the fund.

"The fund is like a sword and shield for us. I am ready to fight, but I don't want any war. I want peace. Don't force me to do so," he alerts.

Regarding inflation control, the governor felt that exchange-rate stabilisation is very vital in terms of cooling down inflationary pressure. The inflation keeps falling in recent months although it has not been brought down to the target yet.

"Our target is to bring down within 8.0 per cent by June next and below 7.0 per cent by August. I think we are in right direction," the BB governor maintains.​

 

[Saif]

OFC as a strategic monetary policy tool

Bangladesh, which is close to important south and southeast Asian markets, is a potential location for setting up a an Offshore Financial/Business Centre (OFC/OBC). With the interim government announcing a plan to establish a Free Trade Zone (FTZ) and attract global investment, the country is poise

thefinancialexpress.com.bd

OFC as a strategic monetary policy tool
Is it feasible in Bangladesh?

Md Saidul Islam
Published :
May 25, 2025 23:59
Updated :
May 26, 2025 00:09

Bangladesh, which is close to important south and southeast Asian markets, is a potential location for setting up a an Offshore Financial/Business Centre (OFC/OBC). With the interim government announcing a plan to establish a Free Trade Zone (FTZ) and attract global investment, the country is poised for an important shift in its financial landscape. Examining the feasibility of setting up an OFC/OBC in Bangladesh is necessary in this connection. The use of it as a monetary policy tool as well as economic facilitator may also be examined.

In the April 2025 Investment Summit, DP World Chairman expressed interest in investing the country after meeting with Chief Advisor Prof Muhammad Yunus. It offered Bangladesh’s FTZ plan a promising boost. In line with successful models like the Jebel Ali Free Zone in the United Arab Emirates (UAE), a national committee has been established, signifying progress towards a globally interconnected offshore financial centre.

With the OBU Act-2024, facilitated by FF Circular 11 (January 30, 2025) of Bangladesh Bank, the country has made a major institutional shift by enacting its first law to regulate offshore banking after 38 years despite the fact that it is a commercial bank’s banking unit or desk. Investor confidence is, however, dependent on more comprehensive system-wide reforms, such as the setting up OFCs or OBCs.

OFC decoded: The term ‘offshore’ refers to a geographical location outside of one’s home country. It is mostly used in the banking and financial sectors to describe ‘areas where regulations are different from the home country.’ It, however, means that an ‘offshore jurisdiction’ of ‘offshore centre’ may be located within a country although regulated differently.

Generally, the term ‘offshore financial centre’ of OFC is used for any country or a jurisdiction with financial centres comprising of financial institutions that deal primarily with non-residents and/or in foreign currency on a scale out of proportion to the size of the host economy. In other words, non-resident owned or controlled institutions play a vital role within such financial centres. The International Monetary Fund (IMF) in 2007, offered a definition of OFCs: “An OFC is a country or jurisdiction that provides financial services to non-residents on a scale that is incommensurate with the size and financing of its domestic economy.” Despite some limitations, the IMF definition is widely accepted across the world.

Globally, OFCs such as the Cayman Islands, Singapore, Hong Kong, Malaysia, Mauritius and Luxembourg are important in determining economic and financial outcomes by virtue of their ability to facilitate capital flows, enhance currency liquidity, and provide alternative financing windows. The significance of such viewpoints is now increasing for Bangladesh as it endeavours to strengthen its monetary and financial systems in the face of changing global dynamics.

In order to attract foreign direct investment (FDI), maintain currency stability, and establish connections with global financial markets, Singapore, Dubai, and India’s GIFT City have all effectively used offshore centres.

Following the global practice, Bangladesh may actively consider establishing an OFC or OBC which will be able to manage money, enhance net foreign assets, and help maintain price and economic stability by stabilising the local currency. OFC will target the benchmark interest rate on foreign currencies, and manage liquidity inflows and outflows to protect against inflation and currency shocks. This calculated action may bring a new opportunity for financial integration as well as indirect monetary policy intervention through increased regulatory innovation, liquidity management, and capital inflows.

However, it also raises concerns about capital flight, money laundering, and regulatory flaws that could jeopardise Bangladesh’s financial system’s stabilisation. OFCs are well known for ‘hiding tax liabilities or ill-gotten gains from authorities’. In this connection, the establishment of a strong regulatory framework, meticulous risk management protocols, and international collaboration are necessary for the effective implementation of OFCs in Bangladesh.

AS a stratigic monetary tool: Traditionally, central banks use tools such as interest rate adjustments, open market transactions, and reserve requirements to regulate the money supply to contain inflation and maintain macroeconomic stability. In a globalised financial system, offshore financial centres provide supplementary, market-driven processes that affect monetary dynamics through private sector contacts and cross-border finance.

The offshore jurisdiction usually has minimal or no taxation, and provide regulation and legal frameworks promoting international financial transactions with less transparency. Several studies ((Blinder, A. S., 2008 and Hutchison, M. M., 2009) show that a non-convertible offshore financial centre offers extensive financial services, low tax rates, and appeals to foreign investors. So, the centre may influence monetary policy by directly effecting capital flows and liquidity management on the Financial Account. Funds channelled through OFC may have zero effect on money supply. It is hypothetically illustrated in Table-1.

On the other hand, a fully convertible offshore financial centre may facilitate total currency convertibility and encourage unfettered capital movement, potentially impacting exchange rates and monetary stability and directly affecting the current account.

Bangladesh can consider an OFC/OBC as a strategic monetary policy tool rather than a comprehensive liberalisation strategy. It could establish a unique offshore financial hub focused on enhancing connectivity within South Asia and ASEAN, attracting Islamic finance, green bonds, and technological investments, while enhancing monetary and financial sovereignty through diversification. Bangladesh can incorporate its new banking regulations into a comprehensive offshore financial centre or offshore business centre structure.

How it MAY work: In contrast to more conventional methods like interest rates, reserve requirements, or open market operations, which Bangladesh Bank currently uses, OFC can act as an indirect but effective monetary policy tools. OFC usually works by influencing the larger financial environment through international capital flows, foreign currency liquidity, and offshore borrowing/lending regimes, whereas traditional instruments directly affect liquidity and inflation through local banking processes.

OFCs influence the money supply through mechanisms such as currency swaps, offshore deposits, and capital repatriation, which contrast with the central bank’s regulated domestic operations. For example, Offshore Banking Units (OBUs) in Bangladesh efficiently increase the available credit base and money supply by using up to 30 per cent of their regulatory capital from Domestic Banking Units (DBUs). This is accomplished through market-based offshore operations and is comparable to the multiplier effect that is typically connected with central bank initiatives.

In addition, OFCs draw FDI and remittances, and offer a platform for foreign currency management and hedging. All of these have an impact on local liquidity and the exchange rate. OFCs bring dynamic, market-responsive mechanisms that interact with global capital markets, either enhancing or reducing domestic monetary trends, in contrast to the static character of conventional methods. As a result, even though OFC is not considered standard monetary tools, its growing function in controlling liquidity, maintaining exchange rate stability, and affecting credit availability makes them complementary and strategically important monetary policy tool in a networked financial system.

By using global capital flows to affect important macroeconomic factors including liquidity, interest rates, currency rates, and the money supply, the establishment of an OFC can be a strategic addition to a nation’s monetary policy toolkit. OFCs function through the architecture of global finance, facilitating cross-border investment, enabling risk management, and luring foreign capital under advantageous regulatory and tax regimes, in contrast to traditional instruments like interest rate adjustments or open market operations.

OFCs also provide liquidity to the domestic financial system by attracting foreign capital inflows through tax breaks and regulatory latitude, which can reduce interest rates and boost the economy. On the other hand, they can also direct domestic money abroad in pursuit of risk diversification or higher rates, which could affect local liquidity and lead to central bank action to preserve monetary stability. Thus, OFCs serve as both channels and buffers, affecting the domestic money supply in accordance with the more general objectives of monetary policy.

Additionally, by providing alternate channels for capital allocation and investment, OFCs lower domestic financial volatility, promote financial innovation, and offer tools for hedging and diversification. Additionally, they provide as venues for regulatory arbitrage, which, when properly controlled, can enhance domestic laws by providing flexibility without jeopardising systemic stability. Well-regulated OFCs can strengthen creditworthiness, draw in long-term investment, and assist the central bank in better managing inflation, exchange rate pressures, and economic shocks when they are closely linked with a nation’s monetary governance. Therefore, OFCs are more than just offshore financial havens; they may also serve as sophisticated enhancers of monetary policy, offering leverage and flexibility in a financial system that is becoming more interconnected by the day.

In order to maintain price stability and economic expansion, Bangladesh Bank controls the money supply through the use of instruments such as interest rates, reserve requirements, and open market operations. With foreign reserves of about $21 billion, broad money (M2) is valued at Tk 17 trillion as of 2024. Due to changes in capital allocation, Bangladeshis’ offshore assets decreased from $8.145 billion in 2021 to $5.91 billion in 2022. Liquidity and foreign exchange availability are impacted by the Tk 83,826 crore ($9.5 billion) in loans held by offshore banking units (OBUs). Maintaining Bangladesh’s macroeconomic stability still depends on effective monetary policy that is in line with controlling both domestic and foreign financial flows.

Variety of instruments: A wide variety of financial instruments that are essential for international liquidity and capital mobility are traded by offshore banking and financial centres. These consist of commodities futures, money market instruments, hedge funds, private equity, and foreign exchange. Centres for SBLC monetisation, trade financing, collateral transfers, and international guarantees include the Cayman Islands, Singapore, and Hong Kong because they provide regulatory simplicity and tax neutrality. These products have a major impact on financial flows, encourage investment, and stabilise markets in both host and participant nations by promoting risk management, improving liquidity, and drawing in international capital.

So, Bangladesh may consider setting-up strategically placed integrated offshore zones like Matarbari, Moheshkhali, Sabrang (Marine Drive), and the Northern Special Economic Zone (NSEZ) in order to optimise the advantages of OFCs or OBCs. By providing competitive tax holidays, regulatory flexibility, and streamlined processes in line with international OFC best practices, these zones can serve as pilots for OFC operations. To ensure the integrity and security of offshore transactions, a strong legal and compliance framework must be established, especially to implement the Countering the Financing of Terrorism (CFT) and Anti-Money Laundering (AML) standards.

OFCs and OBCs should support capital inflows, financial instrument diversity, and Taka stability in line with Bangladesh’s larger monetary policy objectives in order to increase macroeconomic resilience. Furthermore, if Shariah-compliant, there is an opportunity for OFC to open an investment window of the Islamic banks in the country.

End note: In the real word, to what extent a full-fledged OFC can perform as a strategic monetary tool is a matter of thorough study backed by empirical evidences. For Bangladesh, it is a new concept and requires further examination. The experiences of the country’s OBUs, however, indicate that the policymakers need to look into the matter and seriously consider setting up an OFC in Bangladesh.

Md Saidul Islam CDCS is First Vice President and Head of OBU

The Premier Bank PLC, Gulshan Branch.​

 

[Saif]

Autonomy for BB

If everything goes according to the plan, the Bangladesh Bank (BB)---the country's monetary authority, is all set to emerge as an autonomous financial institute. To make this happen, as incumbent governor of the central bank Dr Ahsan H Mansur discloses in an interview with the FE, the process of br

thefinancialexpress.com.bd

Autonomy for BB

Published :
May 29, 2025 01:07
Updated :
May 29, 2025 01:07

If everything goes according to the plan, the Bangladesh Bank (BB)---the country's monetary authority, is all set to emerge as an autonomous financial institute. To make this happen, as incumbent governor of the central bank Dr Ahsan H Mansur discloses in an interview with the FE, the process of bringing about the necessary revision to the Bangladesh Bank Order 1972 is under way right now. With this move Bangladesh stands poised to break free from the stereotyped notion that only the developed, not the developing or least developed, countries deserve independent central banks. In fact, the central bank in every country should enjoy some degree of independence in performing its core functions like monetary policy and financial stability. It may be accountable as much as required for maintaining transparency and responsiveness to crises through reporting to the finance ministry or parliament.

The nation will be waiting to see how far the horizon of the BB's autonomy can be extended under the legal provisions now getting worked out on the anvil. That the incumbent BB governor has made it clear that he has not been under any pressure from the government is understandable. It is, however, one thing under the rule of an interim government but quite another when a political government takes over. Political governments more or less exert pressure on the central banks everywhere at times to take popular decisions for reasons of political expediency. The national banks in advanced countries have safeguards equal to the task of withstanding such pressures without getting swayed by political pressures in favour of adopting short-term populist policies. Instead, the central bank undertakes the task of navigating the tortuous and painful course to achieve the long-term economic goals even if the policy is unpopular. If the BB is made structurally sound and legally strong to go about the business of focusing on its long-term goals such as framing effective monetary policy, controlling inflation and managing financial crises arising even out of external developments, it will be an excellent job.

It must be recognised that the BB has already given a good account of itself. During the remaining period, it will have to build on this to leave a legacy for the political government to continue with such an enabling equation. If this happens, it will be a great gift from the incumbent governor and the interim government to the nation. It is because of such mutually beneficial relations between the government and the BB, the later could take a few unpopular decisions such as leaving the exchange rate between dollar and Taka on the open market and supporting at least two banks to have an appreciable turnaround.

Next to come, according to the governor, the most crucial decision on the non-performing banks. Merger of a few of them and takeover of others on the basis of assessment the BB made are on the cards now. The banks that face severe liquidity crisis will be taken over but not dissolved. The government can hardly afford to operate such sick banks. If not divested to raise funds, the other ways of their survival will be handing over to private hands or injecting more minted money. The last option is undesirable. Perhaps a middle course based on a combination of disposal of some assets, thriftiness in operation and the barest minimum injection of fund can help wobbling banks to gradually stand on their feet.​

 

[Saif]

Legal flaws, decentralisation fuel banking scams: Saddat

Centralised operations, diversified revenue models, and disciplined governance are vital for the recovery of Bangladesh’s banking sector, said Kimiwa Saddat, Managing Director (current charge) of Community Bank Bangladesh PLC...

www.newagebd.net

Legal flaws, decentralisation fuel banking scams: Saddat
Mostafizur Rahman 03 June, 2025, 21:43

Kimiwa Saddat

Centralised operations, diversified revenue models, and disciplined governance are vital for the recovery of Bangladesh’s banking sector, said Kimiwa Saddat, Managing Director (current charge) of Community Bank Bangladesh PLC.

In an interview with New Age Business magazine, the country’s youngest Managing Director identified the decentralised operational structures still followed by most banks as a root cause of unchecked lending, mismanagement, and inefficiencies.Wellness retreats

‘Unless banking operations are consolidated and streamlined, incidents of mismanagement and fraud will continue, undermining public confidence,’ he said, making the remarks at a time when the country’s banking sector is grappling with one of the worst crises in its history.

He noted that banks currently performing well tend to have more centralised control structures, which allow for more effective risk management.

Saddat identified non-performing loans (NPLs) as the most pressing issue facing the banking sector today.

He argued that the problem extends beyond lending discipline and reflects deeper structural inefficiencies.

While stronger banks are adopting centralised models that promote better governance and risk control, many institutions continue to operate in a fragmented manner, hindering systemic reform.

On the issue of supporting a large number of weak banks through capital injections, despite the economic strain on Bangladesh, Saddat acknowledged that the recovery process would require a long-term commitment, potentially spanning three to four decades.

While capital infusion is one option, he emphasised that it should not be seen as the only path forward. Alternatives such as involving depositors as equity stakeholders or implementing targeted restructuring measures must be explored as part of a comprehensive reform agenda.

Kimiwa Saddat

He expressed optimism that the sector would eventually overcome these challenges.

In his view, the market will self-correct over time, and banks currently underperforming will either adapt or be phased out, resulting in a more robust system overall.

Saddat pointed to the turnaround of previously struggling banks, such as Eastern Bank, which are now among the top performers. These success stories, he said, demonstrate that recovery is possible through sound management, transparency, and strategic reform.

He also believes that forensic audits can play a key role in identifying the extent of losses in weaker banks, thereby providing a factual basis for targeted interventions. Solutions could include fresh capital injections by the government, public-private partnerships, or other innovative financial models.

Commenting on the recent push for bank mergers, Saddat struck a cautious note. While acknowledging that mergers and acquisitions are a potential solution, he does not view them as the first or most effective course of action.

In previous instances where strong and weak banks were merged, mere announcements triggered depositor panic and led to falling share prices for listed banks, he noted.

The complexity of merging banks with wide structural differences makes it a risky and challenging process.

Without thorough planning and clear communication, such strategies can backfire, eroding public trust rather than restoring it.

Beyond the challenges posed by decentralised operations, another major obstacle, according to Saddat, is the outdated legal framework — particularly regarding mortgage foreclosure laws and the decision-making processes for handling defaulted loans.

The sale of mortgaged properties often takes between three and seven years due to legal entanglements.

As such, rules governing mortgage foreclosure must be clearly defined, timelines shortened, and responsibilities allocated through a well-structured decision tree.

Saddat emphasised the urgent need to modernise legal and regulatory frameworks. ‘Without legal reform, other structural adjustments will have limited impact,’ he said.

As long as wilful defaulters are able to exploit legal loopholes and obtain indefinite stay orders, banks will remain exposed.

Saddat stressed the need to enforce existing regulatory provisions designed to penalise such defaulters, warning that without enforcement, reform will remain an illusion.

He also highlighted the profitability strategies of foreign banks operating in Bangladesh.

Kimiwa Saddat

He cited Standard Chartered Bank’s recent financial disclosure, which reported profits of over Tk 3,500 crore despite its comparatively smaller loan and deposit base.

Saddat observed that foreign banks such as HSBC succeed by adopting diversified revenue models that do not rely heavily on interest income. Instead, they generate significant fee-based income, strong treasury operations, and non-funded earnings — particularly from trade finance activities such as letters of credit (LCs).

In contrast, many Bangladeshi banks remain heavily reliant on interest income from loans.

Saddat urged local banks to reconsider their business models by drawing lessons from international best practices.

The key difference, he explained, is that foreign banks enjoy greater credibility and trust in global credit markets. Their LCs are widely accepted, whereas Bangladeshi banks often face difficulties in finding foreign correspondents willing to confirm or process LCs due to concerns over credibility.

This disparity restricts the capacity of local banks to expand their non-funded income, putting them at a competitive disadvantage.

Saddat expressed cautious optimism regarding the government’s recently established taskforce on banking reform.

However, he believes that for the taskforce to be effective, it must focus on a few core priorities: regulatory modernisation, strategic centralisation, diversified revenue models, and disciplined governance.

Addressing the recent surge in depositor anxiety and fund withdrawals, Saddat underscored the importance of restoring public confidence.

He argued that regaining trust requires more than financial measures — it calls for transparency, consistent communication, and visible accountability.

Government agencies and banking leaders must work together to reassure the public that deposits are secure, that defaulters will be held to account, and that reforms are being implemented with genuine commitment and urgency, he said.​

 

[Saif]

Five underperforming banks to merge into Islamic bank

Bangladesh Bank will merge five underperforming Islamic banks into a single entity, which will be structured in line with Shariah-compliant banking principles. The decision came at a meeting on Wednesday, where Bangladesh Bank Governor Ahsan H Mansur met with the managing directors and chairperson

thefinancialexpress.com.bd

Five underperforming banks to merge into Islamic bank
bdnews24.com
Published :
Jun 05, 2025 18:37
Updated :
Jun 05, 2025 18:37

Bangladesh Bank will merge five underperforming Islamic banks into a single entity, which will be structured in line with Shariah-compliant banking principles.

The decision came at a meeting on Wednesday, where Bangladesh Bank Governor Ahsan H Mansur met with the managing directors and chairpersons of the five banks.

According to First Security Islami Bank Chairman Abdul Mannan, the banks involved are Social Islami Bank, Global Islami Bank, First Security Islami Bank, Union Bank, and EXIM Bank.

Four of these banks were previously controlled by Saiful Alam, a Chattogram-based businessman known for his close ties to deposed prime minister Sheikh Hasina.

EXIM Bank’s board was under the control of Nazrul Islam Mazumder, also a close associate of Hasina.

The merger process is expected to begin after Eid-ul-Azha, taking approximately three and a half months.

A new board will be formed, comprising existing board members and representatives from various sectors. Until the merger is complete, the banks will operate under the direct supervision of the central bank.

It has also been decided that the newly formed bank must reduce its total defaulted loans to below 10 percent. The banks’ assets will be consolidated, and bad assets will be transferred to a management company.

A fresh banking licence will be issued by Bangladesh Bank for the newly formed entity. The government, along with international development partners, will provide the required capital. Budgetary allocations have already been made in the 2025-26 fiscal year.

The entire process will be carried out under the upcoming Bank Resolution Ordinance 2025.

Mannan expressed optimism that the move would bring much-needed stability to the banks, and confirmed that the new bank will follow a fully Shariah-compliant model.

He also acknowledged that most of the loans that were issued while these banks were under S Alam Group’s influence have turned into defaults, severely weakening their financial position.

“After the merger, the number of branches will increase and customer service will improve,” he added.

“Initially, these banks will be brought under state control, after which the government will seek foreign investors for privatisation,” Mannan said.​

 

[Saif]

Banks fail to implement BB directive to keep adequate cash at ATMs during Eid holidays

Banks have failed to follow Bangladesh Bank's (BB) instructions to keep ATM boothsin service during the Eid holidays. There is a 10-day holiday from June 5 to June 14 on the occasion of Eid-ul-Azha. Banks are also closed during this holiday. As a result, ATM booths have become the only hope for w

thefinancialexpress.com.bd

Banks fail to implement BB directive to keep adequate cash at ATMs during Eid holidays

Published :
Jun 13, 2025 00:17
Updated :
Jun 13, 2025 00:17

Banks have failed to follow Bangladesh Bank's (BB) instructions to keep ATM boothsin service during the Eid holidays.

There is a 10-day holiday from June 5 to June 14 on the occasion of Eid-ul-Azha. Banks are also closed during this holiday.

As a result, ATM booths have become the only hope for withdrawing cash. But during this long Eid holiday, the booths have not provided the desired service. Customers are facing hardships.

Most of the ATMs in Dhaka city are now out of service or out of operation. The same is true of ATMs located in different districts.

The central bank announced in a circular on May 29 that all scheduled banks in the country will have to provide sufficient money to their ATM booths to allow customers to make smooth financial transactions during the Eid holiday.

Bangladesh Bank instructs commercial banks every year before Eid to keep sufficient money in the booths and have a system for refilling around the clock. But in reality, this is not reflected.

Several bank officials told UNB that ATM booths are usually operated in two ways - one is a booth attached to the bank branch, and the other is a separate or independent booth. The booths adjacent to the branch are operated by that branch.

Since the banks were closed last Thursday during the Eid holiday, new money could not be deposited in these booths because all the branch officials were on leave. However, some banks have taken special initiatives and have kept some officials in charge only for filling money in ATMs.

As a result, although some booths had money, most were empty.

An official of Bangladesh Bank said, "We have already given instructions so that sufficient money is kept in each booth."

However, there are complaints at the field level that many banks are not following those instructions.​

 

[Saif]

Local, foreign banks scramble for LC financing

Six proposals from national and international commercial banks have so far been received as the bankers queue up for funding Bangladesh's LNG import with the World Bank playing the guarantor, officials said. Now, they said, the country's energy and mineral resources corporation - nicknamed Pet

thefinancialexpress.com.bd

WB-GUARANTEED REVOLVING FUND FOR LNG IMPORT
Local, foreign banks scramble for LC financing
First-year guarantee to fetch $350m under 'Revolving LC facilities' scheme

FHM HUAMAYN KABIR
Published :
Jun 13, 2025 00:51
Updated :
Jun 13, 2025 00:51

Six proposals from national and international commercial banks have so far been received as the bankers queue up for funding Bangladesh's LNG import with the World Bank playing the guarantor, officials said.

Now, they said, the country's energy and mineral resources corporation - nicknamed Petrobangla -- is negotiating with the aspirant banks on the possible rate of interest on their loans and other charges for the import of liquefied natural gas from the global market.

The World Bank's soft lending window, the International Development Association (IDA), has come forward with a US$350 million worth of loan guarantee for facilitating the fuel import to meet Bangladesh's growing energy demand, they said.

"We have got six expressions of interest (EoIs) from national and international banks. Now we are negotiating with them on the rate of interest and other charges," a senior Petrobangla official told the FE Thursday.

They have a plan to suggest the commercial banks to form a consortium to support the government in importing LNG with the guarantee of the multilateral funding agency.

The Washington-based lender's soft-lending window has assured Bangladesh of underwriting loans needed to foot the bill worth $350 million for LNG import. This amount falls under a 'Revolving LC facilities' scheme.

"In the first phase, we have talked to the aspirant commercial banks on their LC-opening rate and charges for other services for the LNG import. We hope we will get a competitive rate from them," says a senior Energy and Mineral Resources Division (EMRD) official.

"After finalising deal with the commercial banks or with their consortium, we will welcome the IDA's guarantee scheme and will open LCs for importing the LNG."

The EMRD considers the WB proposal as a new avenue for Bangladesh in LNG supply to feed the country's growing fuel demand.

Another senior EMRD official says although the WB has proposed to help Bangladesh in importing liquefied natural gas or LNG worth up to $350 million annually from the international market, it also offers that the facility will be enhanced over the next seven years.

The proposed first tranche of credits for the first year will be a 'revolving LC facility' for securing the corporation's long-term working capital for smooth import of the liquid gas that supplements the supplies from the national gas grid amid gas-exploration stalemate in the country.

According to the proposal, for the revolving LC-facilitating funds the IDA will charge SOFR-plus 2.0 per cent. Its LC-opening period will be three months and the repayment period nine months.

The EMERD official says after getting the EoI from the commercial banks, they will compare the proposal with other financing facilities like the ongoing credit facility from the Islamic Development Bank (IsDB)'s ITFC.

"If we find it concessional than the other existing facilities, we will go for taking the IDA offer."

The ITFC has recently confirmed $600 million worth of loans for Bangladesh to import fuels and fertilisers from the overseas market.

Bangladesh government will borrow $600 million from the ITFC to import fuel oils, LNG, and fertilisers. The loan will carry an interest rate of six-month SOFR-plus 1.80 per cent, along with a 0.2-percent administrative fee.

As per IDA's proposal, some local and foreign banks will arrange the loan for opening LNG- import LCs. The IDA will be the guarantor on the loans from the commercial banks on behalf of the importer, the state-run Petrobangla.

Following Bangladesh's natural gas-supply shortages from its own gas fields across the country-largely for neglecting new exploration-it has imported the liquid gas from overseas market over the last few years in a bid to meet local energy demand.

The LNG import started in the 2018-2019 period. Since then, the imported fuel has played a vital role in meeting the country's growing gas demand.

In 2022, the country imported a substantial quantity of LNG, to the tune 5.06 million metric tonnes, from Qatar Gas, Oman Trading, and the spot market at a cost of US$4.555 billion.

Last year, a total of 86 LNG cargoes were imported-- 56 from long-term suppliers and 30 from spot market, the official mentions.

Bangladesh will need to import 30-Mtpa LNG to meet the growing local demand by 2041 as domestic gas reserves are depleting fast, according to a global report of the Copenhagen-based research firm Ramboll in association with Geological Survey of Denmark and EQMS Consulting Limited.

The country's "existing gas reserves will run out by 2038 if no new exploration and discovery take place," the report reads about the alert.​

 

[Saif]

Bridging banking divide for balanced growth

The issue of disparity between the rich and the poor, as well as between urban and rural areas, is a frequent topic of discussion, especially in seminars and academic forums. Today's reliance on the market system has only exacerbated this economic imbalance by disregarding the interest of the non-c

thefinancialexpress.com.bd

Bridging banking divide for balanced growth

Published :
Jun 16, 2025 00:17
Updated :
Jun 16, 2025 00:17

The issue of disparity between the rich and the poor, as well as between urban and rural areas, is a frequent topic of discussion, especially in seminars and academic forums. Today's reliance on the market system has only exacerbated this economic imbalance by disregarding the interest of the non-competitive people. A recent Financial Express report brings to light yet another dimension of this divide. Citing data from Bangladesh Bank, the report reveals a disturbing disparity in bank loan disbursement: while over 68 per cent of the population resides in rural areas, only 8 per cent of total bank credit is directed there. This stark imbalance not only reflects skewed development priorities but also entrenches structural inequalities by depriving rural enterprises of vital financial support.

In the absence of bank loans or due to the difficulty in accessing them, microfinance institutions (MFIs), particularly non-governmental organizations (NGOs), have become a primary source of credit in rural areas. Despite the relatively high interest rates charged by NGOs, rural borrowers often turn to them due to the unavailability of credit from traditional banks or the stringent conditions imposed by formal financial institutions. Although MFI interest rates have declined in recent years due to increased competition among microlenders in rural regions, interest rates on microcredit are still considerably higher than those offered by banking channels. These high-cost loans drive up production costs and undermine the competitiveness of rural entrepreneurs.

Meanwhile, although the prevalence of mahajans or loan sharks has decreased following the expansion of MFIs, moneylenders have not disappeared. In many areas, rural borrowers continue to turn to informal lenders to meet urgent financial needs, largely due to limited access to formal banking services. A recent research report by the Bangladesh Institute of Development Studies (BIDS) reveals that moneylenders charge an average interest rate of 145 per cent. Despite such exorbitant rates, 20-30 per cent of rural borrowers still rely on moneylenders, while around 50 per cent obtain loans from NGOs.

This limited access to formal banking channels in rural Bangladesh is not merely a matter of inadequate banking penetration - it poses a serious threat to the very notion of balanced and sustainable development. When rural clients are systematically excluded from access to capital, it stunts their economic potential and limits opportunities for upward mobility. Growth becomes increasingly urban-centric, while poverty and underemployment become deeply entrenched in the countryside. Farmers and rural entrepreneurs, who play a vital role in the national economy, are left to grapple with persistent financial challenges - often worsened by natural disasters such as floods. Strengthening credit availability at reasonable rates is, therefore, essential to easing these constraints and promoting sustainable development in rural areas.

To this end, long-term policies must be adopted that prioritise rural financial inclusion and ensure that credit reaches underserved populations effectively. Financial institutions - both banks and NGOs - need to simplify loan procedures by minimising paperwork and tailoring requirements to the realities of rural borrowers. Encouragingly, mobile financial services (MFS) and agent banking have begun to transform the financial landscape in rural Bangladesh. These innovations are bringing banking services closer to the doorstep of rural residents, eliminating the need for physical travel to distant branches. Agent banking, in particular, is gaining traction as a viable banking channel. Expanding credit facilities through agent banking and MFS platforms could significantly transform rural access to finance by providing faster, more accessible, and user-friendly services. Ultimately, bridging the rural-urban banking divide is a must for achieving equitable economic growth.​

 

[Saif]

Classified bank loans balloon fast to a record high

Classified loans in Bangladesh's banking industry made a quantum leap by around Tk 750 billion in just three months to a record high as of March, stoking concerns across the sector. With such leaps in the volume of non-performing loans (NPLs), the aggregate hit Tk 4.20 trillion by the end

thefinancialexpress.com.bd

ABSENTEE BIG ACCOUNT-HOLDERS, CHANGED ACCOUNTING MAJOR FACTORS
Classified bank loans balloon fast to a record high
NPLs rise by Tk750b in three months to Tk4.20t by March end

JUBAIR HASAN
Published :
Jun 16, 2025 00:32
Updated :
Jun 16, 2025 00:32

Classified loans in Bangladesh's banking industry made a quantum leap by around Tk 750 billion in just three months to a record high as of March, stoking concerns across the sector.

With such leaps in the volume of non-performing loans (NPLs), the aggregate hit Tk 4.20 trillion by the end of March 2025, accounting for 24.13 per cent of the entire loans worth Tk 17.42 trillion disbursed by the country's 61 commercial banks.

Constrained by such a record volume of dud money, banks have become extremely conservative and limit their credit supply to the borrowers. Besides, banks' profitability is also dented as they have to maintain a portion of funds for NPL provisioning.

The country's central bank, Bangladesh Bank (BB), predicts that the rising trend in NPLs would continue in the coming quarters as it revised overdue-status-counting system for term lending to a curtailed tenure of six months from previous nine months.

According to the central bankers, this counting arithmetic will be revised further from March 31, 2025 onwards when such loans will be classified within three months instead of the current six months.

According to the data, the share of classified loans rose to 24.13 per cent of the total outstanding loans during the period under review from 11.11 per cent a year before.

Classified loans include substandard, doubtful and bad/loss of total outstanding credits. Of the classified loans, the share of bad loans was 81.38 per cent or Tk 3.41 trillion.

In terms of the category of banks, the ratio of classified loans in the state-owned commercial banks (SoCBs), like on other occasions, remained high.

During the period, the total amount of NPLs with six state-owned SoCBs rose to Tk 1.64 trillion or 45.79 per cent.

On the other hand, the total amount of classified loans with 43 private commercial banks (PCBs) reached Tk 2.64 trillion or 20.16 per cent until March last.

The NPLs of nine foreign commercial banks (FCBs), on the other hand, rose to Tk 32.38 billion or 4.83 per cent during the period under review.

The classified loans with three specialised banks (SBs), however, rose to Tk 64.94 billion (14.47 per cent) by end of March last from 64.32 billion in Q4 of 2024.

Such faster NPL buildup in banks caused serious concerns to bankers who fear further pressure on their liquidity situation in the months ahead. Managing Director and CEO of City Bank Mashrur Arefin says the rise in the volume of NPLs was expected as a "vicious circle took control of some of the banks and laundered public money from banking system" during the previous regime.

Also were there lots of business accounts opened in the last 15 years by people blessed by the then ruling government. But, after the changeover in state power following the July-August mass uprising, those business accounts went into hibernation in terms of sales turnover or cash-flow generation, which also contributed to the significant rise in the NPLs.

"Moreover, the compliance with international standards of classified- loan recognition as of 31st March played a significant role," he further notes about the reasons why such a spurt in non-performing loans.

Mr Mashrur, also ABB Vice Chairman, feels that the banks here need to understand that it is a business of high credit risk, including the investment risk in capital market. "So, right Credit Risk Management (CRM) framework and Board Risk Management Committee (BRMC) are a must to have."

Managing director and chief executive officer of Mutual Trust Bank (MTB) Syed Mahbubur Rahman says the real picture of NPL in banks started getting exposed in the changed context now.

He feels the volume of dud loans could increase further in the months ahead following implementation of a new classified-loan-counting system.

Apart from steps to ensure governance, the experienced banker suggests that the business-hurting external factors need to be in favour to ensure smooth business operations.

"We need to be more careful in future," he says in an alert note over the rapidly-changing global scenarios affecting trade and business.

Managing director and CEO of the country's largest state-owned lender, Sonali Bank, Md. Shawkat Ali Khan says they have intensified their cash-recovery drive which is a top priority to cut down the burden of NPL significantly.

"And people will see its results in the coming quarters. We want to convert the non-performing loans to performing assets and lend it to CMSMEs. It's our target now--and we'll do it anyhow," he told The Financial Express Sunday.

Currently, Sonali bank has 19-percent NPL, the lowest among the state-owned commercial banks.​

 

[Saif]

Drained deposits worth Tk 190b return in a single month

Currency buildups outside banks are waning fast with the money flowing back into vaults in a latest pivot that gives some respite to the commercial lenders from a crisis-bred liquidity crunch. Out-flowed deposits amounting to Tk 190 billion returned into the banking sector in a month, last April

thefinancialexpress.com.bd

Money changes course back into banks
Drained deposits worth Tk 190b return in a single month

JUBAIR HASAN
Published :
Jun 21, 2025 00:49
Updated :
Jun 21, 2025 00:49

Currency buildups outside banks are waning fast with the money flowing back into vaults in a latest pivot that gives some respite to the commercial lenders from a crisis-bred liquidity crunch.

Out-flowed deposits amounting to Tk 190 billion returned into the banking sector in a month, last April, amid a lax investment regime as well as gradual restoration of confidence in banking operations after a past rout, official data show and analysts believe.

Central bankers and money-market analysts say depositors took away a large volume of their deposits from the banking system during Ramadan and Eid-ul-Fitr, which enhanced the volume of currency outside the banks -- euphemistically called mattress money-- to a record high in March 2025.

But, after the largest religious festival in the Muslim-majority economy was all over, the deposits began changing course back into the banking system in absence of other investment opportunities under the prevailing economic sluggishness, according to them.

According to the latest data available with the central bank, the cache of currency outside banks dropped to Tk 2.77 trillion at the end of April, from the March count of Tk 2.96 trillion.

The deposit outflows from banks had been on stream since October 2024 following reports of gross irregularities in some commercial banks. The amount rose to a record-high Tk 2.96 trillion in March 2025, before a climbdown began with the money changing its course over again.

Seeking anonymity, a BB official says people normally takes away deposits in large volumes ahead of any major festivals, like Eid. Because of the fact, the volume of money outside the banks increased by Tk 250 billion in just a month in March when the country observed Ramadan and Eid-ul-fitr.

"That's why the volume of mattress money rose to Tk 2.96 trillion in March from February's count of Tk 2.71 trillion. After the festival, it dropped to Tk 2.77 trillion in the following month," the official told the FE writer in explaining the latest switch on the money market.

The central banker predicted the figure would increase again in May once the post-Eid data were conflated.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB), says people probably do not feel comfort in keeping money outside the banks for a long time by taking the current law-and-order situation into consideration.

On the other hand, the experienced banker mentions, banks have been offering relatively better rates for the depositors while the yields on treasury bills and bonds are still lucrative for the investors.

"These factors might attract the deposits that out-flew in recent times to return to the banking system, which is a good sign," the banker adds.

Contacted, Policy Exchange of Bangladesh chairman Dr M Masrur Reaz said there were very limited investment instruments for common people here and this makes them pivot back to banks.

Excepting banks, potential investment areas were savings certificate and capital market. But the share market is unhealthy and putting money in stocks is becoming extremely risky while the rates on savings certificates are not as lucrative as the savers desire.

"That is why people are now returning back to banks, which is a good sign," says Mr Reaz about the turnaround.

The development especially bears significance for happening at a time when the interim government is trying to restore shaken client confidence in banks and putting the banking system back in order through major reforms that include mergers of those weakened through alleged mismanagement and plunder in the past.

The cleanup recipe also includes drives for repatriating funds siphoned off the banks and enterprises as well as freezing suspect bank accounts of runaway or detained tycoons.​

 

[Saif]

No financial liability for banks in contract-based imports: Bangladesh Bank

The Bangladesh Bank has clarified that commercial banks will not bear any financial liability in the case of contract-based imports, in a move aimed at streamlining import procedures and encouraging greater engagement from banks. In a circular issued on Tuesday, the central bank said importers sho

thefinancialexpress.com.bd

No financial liability for banks in contract-based imports: Bangladesh Bank

Published :
Jun 24, 2025 21:01
Updated :
Jun 24, 2025 21:01

The Bangladesh Bank has clarified that commercial banks will not bear any financial liability in the case of contract-based imports, in a move aimed at streamlining import procedures and encouraging greater engagement from banks.

In a circular issued on Tuesday, the central bank said importers should not be restricted from executing import transactions solely on the basis of sales contracts, UNB reports.

The directive comes in response to banks’ longstanding reluctance to handle such transactions, stemming from the misconception that contract-based imports placed the financial burden on them.

The circular explicitly clarifies that banks will be responsible only for managing payment procedures using funds provided by the importers themselves and thereby absolving them of any financial risk.

Insiders see this clarification as a major policy shift, correcting confusion caused by a 2022 circular that led banks to reject contract-based import payments and disrupted import flows.

Industry stakeholders believe the latest move will bolster confidence among banks, simplify import operations, and facilitate a smoother flow of foreign trade.

“This is a timely decision. By clearly stating that banks have no financial liability, it will help reduce import costs and foster a more conducive business environment,” said one importer.​

 

[Saif]

What is the purpose of bank merger?

Hollywood is famous for making thrilling bank heist movies, several of which have earned a place among the best ever made. However, the real-life bank heists that have taken place in Bangladesh are just as astonishing, if not more. Over the past 15 years, hundreds of billions of taka have been siph

thefinancialexpress.com.bd

What is the purpose of bank merger?

SYED MUHAMMED SHOWAIB
Published :
Jun 27, 2025 22:35
Updated :
Jun 27, 2025 22:35

Hollywood is famous for making thrilling bank heist movies, several of which have earned a place among the best ever made. However, the real-life bank heists that have taken place in Bangladesh are just as astonishing, if not more. Over the past 15 years, hundreds of billions of taka have been siphoned off from multiple banks, pushing many to the brink of collapse. Powerful individuals responsible for these embezzlements have reportedly used the money to acquire luxury homes, hotels and businesses abroad, living in opulence while the banks they looted struggle to survive. For a time, the interim government made efforts to recover the lost money. But with little to show, the authorities now seem to have lost interest in the chase.

Now, the same authorities are shifting their focus to merging some of these weak banks under the Bank Resolution Ordinance. Reports suggest that five struggling Islamic banks may soon be consolidated into a large Sharia-based bank, primarily intended to finance small and medium enterprises (SMEs). The government even plans to inject initial capital into this new entity.

But why is the government stepping in to rescue these failing banks, and with taxpayers' money? After all, banks are fundamentally businesses that either profit or incur losses. The key difference is that they operate with other people's money. Like any other business, banks can and do fail. This is a relatively common occurrence in Western financial systems. For instance, in the United States, 568 banks have failed since 2000, averaging 25 closures annually. The worst years were 2010 and 2009, which respectively saw 157 and 104 failures.

Generally, governments refrain from intervening when private banks succeed or fail, as such outcomes are considered part of the risks inherent in private enterprise. Intervention typically occurs only when a bank or financial institution is deemed too big to fail, that is, its collapse would have severe repercussions for the broader economy. A well-known example is Lehman Brothers in the United States. The government's decision not to bail it out triggered a liquidity crisis, widespread panic and a major global economic downturn. In contrast, none of the banks that Bangladesh Bank is now considering for mergers and initial capital support pose such a risk. This naturally prompts the question about the justification for pouring in public funds for their rescue.

Among the five banks slated for merger, four were under the control of the S Alam Group, representing a single business family. They are First Security Islami Bank, Global Islami Bank, Union Bank and Social Islami Bank. The fifth, EXIM Bank, was operated by a businessman closely aligned with the previous government. In Bangladesh, banking regulations limit single-family ownership to 10 per cent of a bank's shares. Yet these individuals found ways around to gain majority control. Once in charge, they are alleged to have siphoned off billions overseas using methods like manipulating trade values where export prices were reported lower and import prices higher than actual.

Collectively, these banks hold Tk1.45 trillion in deposits but have loaned out Tk 2.15 trillion, covering the shortfall by borrowing from Bangladesh Bank and other sources. A large portion of these loans went to related parties. In fact, 90 per cent of Union Bank and Global Islami Bank's loan portfolios went to S. Alam Group, and are now classified as bad debts. Similarly, 70 per cent of loans at First Security Islami Bank and 20 per cent at Social Islami Bank went to the same group. Meanwhile, 10 per cent of loans at EXIM Bank are tied to businesses associated with its former chairman. Banking regulations prohibit lending more than 25 per cent of a bank's capital to a single borrower. This is a safeguard to protect against excessive risk. So, what were the regulators doing when these individuals made a mockery of that limit? How many red flags were ignored for these violations to occur? Reports suggest that S Alam used these funds to build overseas business ventures worth billions. Given the scale of this self-serving lending, the collapse of these banks was only a matter of time.

The current struggles of these banks are undeniably the result of failures by both banks themselves and their regulators. In the end, people reap what they sow. There is no getting around it. The same principle applies to the consequences facing the banking sector. The pressing question now is what the central bank's decision to merge five banks will actually achieve. After the merger and the injection of public funds to restore the newly formed entity, can anyone guarantee it won't once again become a target of political plunder? Have the necessary lessons been learned to prevent a repeat of past mistakes? Without fundamental reforms in the banking sector and strict enforcement of accountability, mergers alone will amount to nothing more than a temporary fix.

There are also serious concerns regarding Bangladesh Bank's policy guidelines on bank mergers. According to the policy, directors of a weak bank or financial institution may return to the board of the merged entity after five years, provided they meet certain conditions. These are often the same people who drove their banks into crisis, and this provision effectively grants a form of immunity by allowing their return after a brief absence. It is imperative that individuals who contributed to the plundering of banks face the consequences of their actions, rather than being given a chance to repeat them.

To bring about a real change, the old playbook must be discarded. Change in the banking sector demands reforms that put structural safeguards in place, mechanisms that would actively prevent violations of single borrower exposure limits or avenues for misinvoicing. Loopholes, after all, are invitations for abuse. Only when such protections are firmly established can bank mergers be expected to produce lasting, positive outcomes. Otherwise it is simply setting the stage for another collapse.​