[🇧🇩] Banking System in Bangladesh

[Saif]

Why central bank independence matters

In a landmark step toward central bank independence, the interim government has reportedly drafted the 'Bangladesh Bank Order, 2025', aiming to elevate the central bank to the status of a constitutional body. Currently, the central bank operates as a 'body corporate' under the Bangladesh Bank Order

thefinancialexpress.com.bd

Why central bank independence matters

Atiqul Kabir Tuhin
Published :
Jul 16, 2025 22:47
Updated :
Jul 16, 2025 22:47

In a landmark step toward central bank independence, the interim government has reportedly drafted the 'Bangladesh Bank Order, 2025', aiming to elevate the central bank to the status of a constitutional body. Currently, the central bank operates as a 'body corporate' under the Bangladesh Bank Order, 1972, and is meant to be autonomous. But political interference, as was evident during the Awami League regime, seriously undermined its autonomy, leading to a cascading effect on the broader economy, from hyperinflation to the near collapse of the banking sector. As a result, there have been discussions and recommendations, including from the International Monetary Fund (IMF), to amend the Bangladesh Bank order to grant the central bank more autonomy, particularly concerning monetary policy and governance of the financial sector.

The crucial role of an independent central bank in achieving price stability is widely acknowledged. As economist John Maynard Keynes famously remarked, price stability should be the foremost goal of monetary policy, a goal unattainable without central bank independence. Keynes believed that a central bank, free from political influence, is better positioned to focus on maintaining stable prices, which is fundamental for a healthy economy. Empirical studies support this view, showing that countries with more autonomous central banks tend to manage inflation more successfully. Citing the experiences of several emerging markets in recent decades, experts argue that central bank independence is the most effective monetary policy governance model to date.

Under such a framework, price stability is achieved by separating monetary policy decisions from the grip of political influence. The separation helps counteract political business cycles. These cycles occur when governments pursue populist and expansionary policies in a bid to ensure their re-elections. While such policies, like increased public spending or easy credit, might initially boost economic activity and garner popular support, it invariably leads to inflationary pressures in the long run. An independent central bank can act as a bulwark against such short-sighted political maneuvering, focusing instead on long-term economic stability.

In the context of Bangladesh, it is not difficult to see the benefits of adopting independent central bank model. In fact, the lack of price stability and the soaring of inflation into the double digits domain under the previous Hasina government serve as a stark example of the cost of printing money to manage outsize fiscal spending. Instead of challenging the regime's pernicious policies, the then subservient BB governors did everything to pander to the whims of the government. From artificially managing the exchange rate and enforcing 'nine-six' caps on bank lending rates, to turning a blind eye-if not actively colluding-to the plundering of state-owned and several private commercial banks, and increasing money supply by printing new money, the policy failures of the central bank during the AL regime were beyond acceptable limits. Had the central bank been truly autonomous, much of the inflationary pressure and the banking sector's distress from rising non-performing loans (NPLs) could be avoided.

Against this backdrop, the proposal to grant Bangladesh Bank constitutional status is both timely and essential. However, simply recognising the BB as a constitutional body won't suffice as numerous existing constitutional bodies - such as the Public Service Commission, Election Commission, and even the judiciary - have not been immune to brazen political interference.

The draft BB order proposes, among other provisions, the formation of a search committee tasked with preparing a shortlist of candidates for the positions of governor and deputy governors. Based on the committee's recommendations, the Prime Minister would nominate candidates. But the appointment as well as removal of the Governor and Deputy Governors will require parliamentary approval. And the governor will be accountable to parliament.

However, in Bangladesh's political culture, monetary policy issues are rarely debated in Parliament. Even under the existing BB order, the Governor is technically accountable to the parliamentary standing committee. Yet, over the past decades, not a single Governor was seen being questioned by Parliament, not even following the unprecedented cyber heist when hackers stole close to 100 million dollars from the reserves. So, legislation alone is not enough, what matters is strong political will for its genuine enforcement.

To shield Bangladesh Bank from political interference, experts underscore the importance of establishing clear and stringent criteria for the appointment of the Governor and Deputy Governors. They argue that the Prime Minister should not have unchecked authority to appoint candidates at will. Instead, the formation of a search committee should be clearly defined and it should be empowered to recommend individuals who are not only technically competent and experienced but also independent-minded and capable of resisting political pressure. Legal provisions are essential, but their effectiveness ultimately depends on the mindset and integrity of those in power. Even if the law guarantees central bank autonomy, no institution can operate independently unless its leadership genuinely upholds that spirit.

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[Saif]

10 banks rated sustainable in BB’s 2024 evaluation

Bangladesh Bank first introduced the sustainability rating system in 2020

www.thedailystar.net

10 banks rated sustainable in BB’s 2024 evaluation
Bangladesh Bank first introduced the sustainability rating system in 2020

Ten private commercial banks and two financial institutions have been rated as sustainable financial institutions in the Bangladesh Bank's Sustainability Finance Report 2024.

The top-rated banks this year are BRAC Bank, City Bank, Dutch-Bangla Bank, Eastern Bank, Jamuna Bank, Mutual Trust Bank, NCC Bank, Prime Bank, Pubali Bank, and Shahjalal Islami Bank.

Among them, BRAC Bank, City Bank, Eastern Bank, Jamuna Bank, Mutual Trust Bank, and Prime Bank also featured in the 2023 rankings.

In contrast, Exim Bank, Trust Bank, United Commercial Bank, and Uttara Bank—previously ranked in 2023—have dropped off the list in 2024.

Among financial institutions, IDLC Finance and IPDC Finance retained their places in the sustainability rankings for the second consecutive year.

The central bank evaluates banks and financial institutions based on five key indicators: the Sustainable Finance Index, CSR activities, green project financing, the Core Banking Sustainability Index, and Banking Services Coverage.

Core Banking Sustainability and Banking Services Coverage jointly account for around 60 percent of the total score.

Banks with strong risk management, healthy capital adequacy, and low non-performing loans receive higher scores under these metrics.

Specifically, the Core Banking Sustainability score considers the net NPL ratio, Tier-1 capital to risk-weighted assets, provision maintenance, CMSME loan share, and large-loan portfolio exposure.

The Services Coverage component, weighted at about 10 percent, evaluates reach through branch networks, number of deposit and loan accounts, and agent banking outlets.

Bangladesh Bank first introduced the sustainability rating system in 2020 to encourage financial institutions to integrate environmental, social, and governance (ESG) considerations into their operations.​

 

[Saif]

Currency paradox: Why is BB buying dollars?

After years of depreciation that saw the taka lose nearly 30 percent of its value against the US dollar since the Covid-19 pandemic, the local currency is finally showing signs of strength.

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Currency paradox: Why is BB buying dollars?

After years of depreciation that saw the taka lose nearly 30 percent of its value against the US dollar since the Covid-19 pandemic, the local currency is finally showing signs of strength.

However, in a surprising turn of events, the Bangladesh Bank has swiftly intervened to halt the US dollar's decline, raising questions about its exchange rate management.

The relentless rise of the US dollar for years has been a primary driver of economic strain in Bangladesh.

It has been a key factor behind soaring inflation, which has remained stubbornly above 9 percent since March 2023, causing hardship for consumers and importers.

While inflation saw a slight dip to 8.48 percent in June, the pressure on household budgets remains immense.

For months, economists and policymakers have pointed to the high exchange rate as a major culprit for the persistent inflation.

Businesses, especially those reliant on imports, have borne the brunt of the powerful US dollar, while exporters and remitters have benefited.

Now, with the taka finally gaining ground to some extent, the central bank has stepped in.

In just two days, Bangladesh Bank purchased $484 million from commercial banks as the exchange rate fell by more than Tk 2 in five days, dropping to Tk 120 against each US dollar.

Following this intervention, the interbank selling rate climbed back to Tk 121.20 on Wednesday.

This prompts a crucial question—why is the central bank seemingly preventing the taka from gaining strength?

One explanation lies in the central bank-managed exchange rate system.

Despite adopting a more flexible regime in May as part of a $5.5 billion loan agreement with the International Monetary Fund, the system is not entirely market-driven.

Bangladesh Bank maintains an exchange rate band and intervenes when the currency moves outside its desired range.

An exchange rate band is a system where a country's central bank sets a target value for its currency against a foreign currency (or a basket of currencies) and allows the exchange rate to fluctuate within a specific range, or "band," around that target.

This approach falls between a completely fixed exchange rate, where the currency's value is pegged and does not fluctuate, and a purely floating exchange rate, where market forces of supply and demand determine the rate without any central bank intervention.

Areif Hussain Khan, executive director and spokesperson for the central bank, defended the intervention, saying the regulator's goal was to prevent excessive volatility.

"We want to keep the forex market stable because neither a big rise nor a steep fall is a good indicator. If the dollar weakens too much, exporters and remitters feel discouraged and suffer losses," he said.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, criticised the central bank's intervention in the foreign exchange market.

He argued that allowing the US dollar rate to decline further could help ease inflationary pressure.

"Over the past three years, various analyses have explained why inflation has increased in Bangladesh. While opinions vary, one consensus has emerged—the rise in the US dollar's value," he said.

He added that reducing the exchange rate from Tk 120 to around Tk 110 could have had a remarkable impact in curbing inflation.

"So, the question is, why is this opportunity to curb inflation being missed?" asked Hussain.​

 

[Saif]

undefined | The Financial Express

thefinancialexpress.com.bd

Banks to remain closed on August 5

BSS
Published :
Jul 17, 2025 19:37
Updated :
Jul 17, 2025 19:37

All scheduled banks across the country will remain closed on August 5, 2025, marking the observance of the government-declared holiday marking “July Uprising Day.”

To this end, the central bank on Thursday issued a circular through its Department of Off-site Supervision, instructing all scheduled banks to suspend operations on that day in compliance with the holiday announced by the government.​

 

[Saif]

Banks borrow record Tk 1.45t in a month as liquidity dries

Fund funnelling from the central bank into commercial banks in Bangladesh through repo instrument hits a record high of over Tk 1.45 trillion in June, indicating their severe liquidity crunch. Deposit growth remains slow amid higher non-performing loan (NPL) regime following past misrule in the ba

thefinancialexpress.com.bd

Banks borrow record Tk 1.45t in a month as liquidity dries

JUBAIR HASAN
Published :
Jul 19, 2025 00:10
Updated :
Jul 19, 2025 00:10

Fund funnelling from the central bank into commercial banks in Bangladesh through repo instrument hits a record high of over Tk 1.45 trillion in June, indicating their severe liquidity crunch.

Deposit growth remains slow amid higher non-performing loan (NPL) regime following past misrule in the banking sector while government bank borrowing also ballooned to make up for revenue deficit, bankers and money-market analysts say about the banks' desperate need for liquidity feeding.

They say the volume of commercial lenders' borrowing through repo window of the Bangladesh Bank (BB) continues ballooning to meet their local-currency obligations.

According to the latest data available with the BB, the country's scheduled banks altogether borrowed Tk 1.45 trillion from the banking regulator under the repo facility in June 2025.

Off the amount, around 75 per cent was taken using 14 days' maturity while remaining Tk 275 billion and Tk 91.05 billion came from 7-day maturity and overnight facility.

Under the repo-backed liquidity facility from the central bank, the figures of borrowed funds were Tk 1.33 tillion, Tk 940 billion and Tk 838 billion in May, April and March last, the data showed.

The commercial lenders needing short-term liquidity are largely bent on 14-day-tenure repurchase instrument of the BB and keep banking on it as much as possible. As a matter of fact, the volume of credits handed out through the liquidity-availing window continues surging.

But there are allegations by a number of bankers and BB officials that some of the commercial lenders frequently use such instruments to avail short-term funds but invest those in long-term government securities to gain more under the persisting economic sluggishness, which plays a significant role in the squeezing of yields on treasury bills and bonds.

Seeking anonymity, a BB official says the rising use of the repo-backed funds indicates that majority of the commercial banks have been facing serious liquidity crunch in recent times.

The central banker says the deposit growth remains low in recent times because of trust deficit in the banking system after massive-scale loan-related irregularities got exposed following the July-August mass-uprising that toppled Sheikh Hasina's governing regime.

On the other hand, the BB official says, the volume of NPLs in banks keeps mounting to reach Tk 4.20 trillion, almost one-fourth of the entire loans worth Tk 17.13 trillion disbursed by the banks until March last.

"So, the banks have no other option but to rely heavily on central bank repo instrument to overcome the formal credit mismatch," the central banker adds.

He mentions that the government roughly borrowed some Tk 1.24 trillion from the banking system in the last fiscal year (FY'25). Of the borrowed funds, the government paid back over Tk 300 billion to the central bank in the form of meeting its previous liabilities.

According to the BB data, the deposit growth stood at 8.21 per cent by April last. It was more than 12 per cent even three years ago.

On condition of anonymity, the treasury head of a commercial bank said commercial banks normally use the short-term liquidity instrument of the BB to meet CRR (cash reserve ratio) requirement.

But the reality is different. The commercial lenders frequently use such instruments to avail short-term funds but invest those in long-term government securities to gain more under the persisting economic sluggishness, he told the FE.

Sharing statistics, the seasoned banker says the banks need to keep 4.0 per cent as CRR with the central bank, which is around Tk 750 billion. But the banks borrowed Tk 1.45 trillion in June last.

"It indicates how serious the liquidity crunch in banks is. If the BB stops giving repo facility for a couple of weeks, majority of the banks will collapse," he said

Under such circumstances, the treasury head said the banking regulator keeps squeezing repo facility following the lending condition set by the IMF (the International Monetary Fund), which is "unfortunate".

The regulator has already curtailed repo facility once a week from daily handouts. It also discarded 28-day repo and is about to scrap 14-day window from October next.​

 

[Saif]

How challenging transition to cashless transaction is

Banking has been undergoing transformation at a phenomenal rate. The latest trend apparently runs counter to the very concept of bank serving as a depository of cash or currency. Maintenance of cash -- enormous sums to be precise, is costly. How costly it can be is revealed by Bangladesh Governor D

thefinancialexpress.com.bd

How challenging transition to cashless transaction is

FE
Published :
Jul 22, 2025 00:05
Updated :
Jul 22, 2025 00:05

Banking has been undergoing transformation at a phenomenal rate. The latest trend apparently runs counter to the very concept of bank serving as a depository of cash or currency. Maintenance of cash -- enormous sums to be precise, is costly. How costly it can be is revealed by Bangladesh Governor Dr Ahsan H Mansur. According to him, Bangladesh has to spend a fabulous sum of Tk 200 billion on management of cash each year. Along with the central bank which alone prints bank notes, 61 commercial banks have to bear the costs of maintenance of idle money, transportation, security, insurance, storage, teller services, and sorting instruments. Printing of each currency note has a cost. If 1,000-taka note costs around Tk5.0-6.0, printing costs of notes of smaller denomination and coins in particular may exceed the value of those notes and coins. In a country where currency notes are subjected to all kinds of abuse, it is not surprising that an additional cost is involved annually with reprinting of 13 per cent banknotes rendered damaged.

Clearly, cashless transaction and transfer of large amounts of money digitally for payment and other purposes can drastically bring down the expenditure on cash management. The country also stands to benefit immensely if its informal sector governed mostly by black money or unaccounted-for economy, thought to be bigger than the formal one, can thus be curbed. So the positives are many if the country can plan for a systemic transition to a cashless society. That calls for payment of small amounts of daily transaction through QR codes to online transfer of big amounts in financial deals by using financial services like PayiO or wire transfer via banks. Cost-cutting and avoidance of physical contact and hassles in such transactions are highly desirable.

Yet things are not very simple and straightforward as one would like them to be. Unless cent per cent cybersecurity and digital protection can be ensured, clients are unlikely to be convinced of such transactions. The notorious digital heist at the Bangladesh Bank has not helped the cause. Breaching of cybersecurity cannot be ruled out unless the cyber unit of each bank or financial institution is manned by highly efficient and knowledgeable staff. Then there is the issue of digital and financial literacy, without a reasonable level of which confidential financial transactions can expose such operations to cybercriminals always on the lookout for banking heists.

Last but not least, the deplorable law and order situation in the country certainly points to make digital transaction safe and secure but the investments made in infrastructure like ATM booths -- so long considered convenient -- are likely to prove to be a waste of money with the booths falling in disuse. Anti-social elements, particularly those looking for innocent victims to commit financial crimes have their own novel way of breaching security codes. In the latest such incident, a 28-year-old young man from Shripur was lured into a private car before taking him hostage and snatching away his debit and credit cards for swindling about Tk600,000 from his accounts in four banks on Saturday last. His flight abroad was scheduled the same night. So without improving the law and order, embarking on a course of cashless transactions may be fraught with danger.​

 

[Saif]

Challenges still remain in banking sector in Bangladesh

Bangladesh’s banking sector has seen some tangible reforms over the past one year under the interim government, but a sustainable recovery of the sector damaged badly during the past government is constrained by some knotty challenges such as rising non-performing loans, outdated regulations and...

www.newagebd.net

ONE YEAR OF JULY UPRISING
Challenges still remain in banking sector in Bangladesh
Mostafizur R0ahman 23 July, 2025, 23:27

Bangladesh’s banking sector has seen some tangible reforms over the past one year under the interim government, but a sustainable recovery of the sector damaged badly during the past government is constrained by some knotty challenges such as rising non-performing loans, outdated regulations and weak institutional capacity, economists said.

The interim government led by Professor Muhammad Yunus assumed office on August 8, 2024, three days after the ouster of the Awami League-led authoritarian regime in a student-led mass uprising.

The Bangladesh Bank under Ahsan H Mansur, who became the central bank governor after the 2024 political changeover, has gone for reforms to address deep-rooted maladies such as loan irregularities, political interference and financial malpractice in the country’s banking sector.

M Masrur Reaz, chairman and chief executive office of the Policy Exchange Bangladesh, an independent advocacy firm, told New Age that among all sectors, the banking sector had witnessed the most visible and impactful reforms over the past one year under the interim government.New age products

He said that a huge amount of funds had been looted and laundered from banks by oligarchs who exploited their political connections with the ousted regime.

The powerful business tycoons reportedly siphoned off $17 billion from the banking sector of the country during the 15-year rule of the ousted prime minister Sheikh Hasina.

That cycle of corruption and abuse of power has been stopped due to the BB steps, Masrur Reaz said describing it as a major achievement.

Reaz said that the central bank took decisive steps by reconstituting boards of several banks, thereby removing the influence of politically connected business groups.

This move, he said, has significantly improved governance and helped restore regulatory compliance in those banks.

The BB has restructured boards of 14 banks, removing controversial and politically connected business groups like the S Alam Group.

The S Alam Group had controlled eight private commercial banks directly or indirectly and allegedly withdrew about Tk 2.25 lakh crore from 10 banks in names and anonymously.

The central bank initiated asset quality reviews at banks known to have faced serious corruption and malpractice, aiming to identify the true extent of damage within those banks.

The reporting of non-performing loans and other data had previously been compromised through data manipulation, but the central bank has now brought those reporting practices under stricter oversight and closer to international standards.

Reaz, however, said that the central bank should have established an asset management company to deal with defaulted loans and facilitate recovery of such loans.

He also stressed the need to revisit the country’s legal framework. He said that many existing laws and regulations posed obstacles to effective banking reforms and those should be amended to support the ongoing restructuring efforts.

The sector’s most pressing challenge remains the ballooning non-performing loans.

By March 2025, NPLs reached Tk 4.2 lakh crore — nearly double the figure from a year earlier, representing about 24 per cent of all outstanding loans and are projected to climb further.

The bad loans had long been understated through rescheduling, restructuring, or even data manipulation during the deposed Awami League-led government, which have now been exposed.

The central bank’s move in April to tighten NPL classification by cutting the overdue period from six to three months as per international standard has exposed more hidden bad loans.

The BB has also frozen a massive amount of liquid assets and tangible assets of defaulters and alleged money launderers over the past one year to recover bad loans.

Mustafizur Rahman, executive director of the Centre for Policy Dialogue, a local think tank, said that the banking sector experienced the highest concentration of reforms over the past one year.

He said that the real picture of the sector — long sugar-coated and obscured — had finally been revealed.

He noted that the Bangladesh Bank formed dedicated task forces and engaged international audit firms to conduct asset quality reviews at struggling banks that uncovered deep-rooted irregularities and malpractices.

Mustafizur added that the central bank had been working with weak banks either to restore their financial health or to facilitate their liquidation through mergers.

‘The Bangladesh Bank has plans to establish an asset management company to recover bad loans and has also initiated processes to bring back laundered funds from abroad, although this will take time due to complex legal and diplomatic procedures,’ he said.

Bankers said that due to the mounting NPL, many banks were now facing acute capital shortfalls and provisioning gaps.

Some 19 banks have been barred from declaring dividends for taking deferral facilities against their high provision shortfalls.

While corruption and loan scams have been somewhat curbed, the overall financial condition of these banks has not improved much, the bankers said.

In desperation, the central bank injected about Tk 37,000 crore into nine struggling banks through printing money to meet depositors’ demands, yet the cash crisis persists, with depositors still struggling to withdraw their funds, BB officials said.

Legal obstacles, including court-ordered stays on loan recoveries and delays in enacting new legislation, continue to shield defaulters, they said.

The BB plans to merge a number of private commercial banks through an ordinance, but the process has yet to begin. Similarly, proposals to establish asset management companies and independent recovery units remain in limbo.

Proper rules for bank directors have been announced but not enforced. A significant amount of defaulted loans is linked to bank directors who have granted themselves loans across different banks, exploiting loopholes in regulations.

The central bank continues to uphold lenient loan rescheduling rules, allowing defaulters with the down payment as low as 2.5 per cent and the repayment period of up to 29 years.

Banks have identified over a thousand of wilful defaulters, but the central bank has failed to take decisive measures, despite having the authority to impose travel bans and other restrictions.

Furthermore, no steps have been taken to hold central bank and commercial bank employees accountable for their roles in corruption and loan scams.

The central bank has recently launched a special rescheduling facility for businesses who defaulted on their loans for reasons beyond their control. Under the facility, only a handful of large borrowers have been benefited, but small borrowers are yet to get any support.

Despite these, Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said that the banking sector witnessed the most comprehensive reforms in the past one year.

He cited the formation of task forces, audits by renowned chartered accounting firms, board reconstitutions, and regulatory reviews as positive developments that could help stabilise the sector.

He also noted improvements in the macroeconomic context, pointing out that the balance of payments strengthened, remittance inflows and exports rose sharply, and foreign exchange reserves improved. The exchange rate, too, has returned to a relatively stable position, he said.

Bangladesh’s gross foreign exchange reserve, calculated under the International Monetary Fund guidelines, soared to $24.98 billion on July 17 from $20.47 billion in August 2024.

He, however, said that the central bank should now shift focus towards stimulating private sector credit growth and improving the investment climate.

Without such measures, he warned, the country’s overall economic growth could face significant headwinds despite improvements in banking oversight.

BB executive director Areif Hussain Khan, also the spokesperson for the central bank, said that they were working to restore the people’s confidence in the banking sector and therefore initiated many reform initiatives.

‘Some initiatives have already been implemented, others are awaiting to be executed,’ he said.​

 

[Saif]

Strengthening the central bank

With nudges from the International Monetary Fund and backing from the World Bank and Asian Development Bank, Bangladesh has embarked on a long-overdue three-year reform plan for its ailing banking sector.

www.thedailystar.net

Strengthening the central bank

With nudges from the International Monetary Fund and backing from the World Bank and Asian Development Bank, Bangladesh has embarked on a long-overdue three-year reform plan for its ailing banking sector. This is not a routine clean-up. The system is facing a structural, not cyclical, crisis, as evident by the record Tk 420,335 crore in defaulted loans as of March 2025, of which over Tk 300,000 crore is concentrated in just 10 banks.

The roadmap promises new legislation, better oversight, and institutional reforms to restore governance and credibility, and to spare taxpayers from footing the bill when banks fail. But unless the Bangladesh Bank (BB) transforms into a forward-looking, system-oriented regulator, no amount of legislation will suffice.

The central bank's legacy of regulatory passivity must be dismantled. In previous political regimes, politically supported interests took over several reputable banks, reportedly including a takeover of Islami Bank at gunpoint. By approving acts that went against fiduciary standards, the Bangladesh Bank shifted from being a regulator to more of a bystander. Any roadmap's implementation will stall unless regulatory independence and muscle are restored.

Five key laws—a new Bankruptcy Act, Money Loan Court Act, Distressed Asset Management Act, Bank Resolution Ordinance, and Deposit Protection Ordinance—are expected to take effect by the first quarter of the current fiscal year 2025-26. These are commendable. But laws alone cannot engineer structural change. That requires accountability and the right incentives.

The strength of a central bank lies not in how many transactions it approves, but in how clearly and consistently it sets and upholds market rules. For too long, BB has micromanaged bank operations, approving individual loans, equity deals, and foreign currency transactions, instead of fostering a rules-based financial ecosystem. These reflect deep-seated institutional insecurity.

Modern central banks such as the Reserve Bank of India (RBI) and the Monetary Authority of Singapore focus on systemic stability. They define prudential frameworks, delegate operational autonomy, and monitor large-scale deviations. The RBI's Early Warning Systems and Prompt Corrective Actions have helped lower India's non-performing assets from 11.6 percent in 2018 to 3.2 percent in 2023, according to its 2024 annual report.

Bangladesh must adopt a similar approach. Centralised approvals disincentivise risk-taking, erode institutional strength, and weaken banks' capacity to manage liquidity, assess credit, or absorb shocks. Even during the post-Covid liquidity glut, banks sat on excess reserves, unable to deploy them effectively.

Amending the Bank Company Act to sever political ties from board appointments is a step forward. But implementing this will require a central bank with the backbone to confront entrenched interests. The move to identify banks' ultimate beneficial owners must be followed through rigorously.

Asset recovery also demands institutional muscle. The revamped loan recovery task force must operate independently, free from selective enforcement. Global examples such as Indonesia's OJK Asset Management Company and India's Insolvency and Bankruptcy Code show recovery works best when tied to judicial reforms and real-time surveillance.

The interim government must view this roadmap as a political and institutional reset, not a checklist. Despite its brief term, it must build bipartisan consensus and protect reforms from electoral churn.

The central bank must evolve from a transaction approver into a market architect. It must enforce real-time monitoring, set clear capital standards based on risk, and penalise poor governance. Without such changes, the reform package risks joining a familiar graveyard: well-intentioned, poorly executed, and quickly forgotten.

The question now is: do we have the institutional courage to let the Bangladesh Bank lead?

The writer is an economic analyst and chairman at Financial Excellence Ltd​

 

[Saif]

Banking fix may cost $5b-$6b

The interim government is considering a rescue plan costing around $5 to $6 billion to salvage troubled banks, which are reeling from widespread irregularities during the previous Awami League government, said Finance Adviser Salehuddin Ahmed.

www.thedailystar.net

Banking fix may cost $5b-$6b
Says finance adviser; the amount is way below IMF’s $35b estimate

The interim government is considering a rescue plan costing around $5 to $6 billion to salvage troubled banks, which are reeling from widespread irregularities during the previous Awami League government, said Finance Adviser Salehuddin Ahmed.

This is way below the International Monetary Fund's (IMF) initial estimate of $18 billion, which was later raised to $35 billion.

"The IMF asked us where we would get such a whopping amount. I told them let's see if we can restructure them within $5 billion to $6 billion," Ahmed said at a book launch in Dhaka yesterday.

Former caretaker government adviser Hossain Zillur Rahman's book "Arthoniti, Shashon, O Khamota: Japito Jiboner Alekkho" was unveiled at the programme. BNP Secretary General Mirza Fakhrul Islam Alamgir was also present.

Ahmed said the interim government had inherited an economy on the brink of collapse, but signs of recovery are now beginning to show.

"But it is not fully recovered yet, and a total cure is not a simple task," he added.

Commenting on the scale of economic mismanagement and plundering during the previous government, Ahmed said, "Such looting was not seen in any country in the world."

The interim government is carrying out short-term reforms, while long-term and mid-term reforms will be undertaken by a political government-— Salehuddin Ahmed Finance adviser.

He claimed that up to 80 percent of loans from some banks had been siphoned off.

"For instance, the total outstanding loan of a bank is Tk 20,000 crore, while around Tk 16,000 crore was taken away and they are now bad loans," said Ahmed, an economist and former governor of the central bank.

He questioned whether any public institution remained unaffected. "The law was broken. Process and system were distorted to such a level, it is difficult to do a good task," he said.

He noted that while the institutions remained in place, those responsible for the decay had not been replaced.

"Some people called to depart them all. However, an administration cannot run in such a way. So, we are trying to make them work by either gently persuading or scolding them. A countervailing power is necessary in the government," said the adviser.

Ensuring good governance under the existing political structure is extremely difficult, as there are no effective checks and balances on the prime minister and members of parliament, he said.

"Without reforms here, no matter how many reforms we talk about, it would not make any difference. Reforms are also needed within political parties," said the finance adviser.

He said that while the interim government is working on short-term reforms, it will be up to an elected political administration to carry out long-term and mid-term changes.

"I have realised that it is easy to exploit, but difficult to govern people here," he said.

BNP Secretary General Mirza Fakhrul Islam Alamgir said reforms are needed, but that must not be used as a pretext to delay elections.

"Reforms cannot be carried out overnight, and they take time. So democratic practices should not be delayed for the sake of reforms," Fakhrul said, adding, "Reforms must be made by people's representatives elected through a democratic process."

At the programme, Professor Mahbub Ullah, former chair of the Department of Development Studies at Dhaka University, focused on addressing rising inequality.

Fahmida Khatun, executive director at local think tank Centre for Policy Dialogue (CPD), said good governance is possible only if accountability is ensured, political stability is maintained, law enforcement remains effective, and regulators operate properly.

Despite high GDP growth and development over the past 15 years, most people had not benefited due to poor governance and corruption, she added.

"During this period, it was forgotten that people are at the centre of power," said the economist. "Regulatory bodies such as the Bangladesh Bank, the Bangladesh Securities and Exchange Commission, and the National Board of Revenue lost their institutional strength. As a result, a vested group benefited."

Prof Abu Ahmed, chairman of the Investment Corporation of Bangladesh (ICB), said he found the institution stripped of all assets when he was appointed. "It is a policy of autocracy that creates 'Mafiaism' and loots institutions. ICB was one victim of such an act."

He recommended elections, even if they might not resolve every issue. "Leaders should be elected, which will make them accountable," he said, adding that there must be a system to ensure no one can become an autocrat again, as autocracy damages the economy.

Hossain Zillur Rahman highlighted three essential conditions for reform and good governance.

First, he said, the democratic framework should prevent any individual or group, including within political parties, from becoming the sole source of power. During the previous regime, not only the prime minister but also all 300 parliamentarians acted as power centres in their own constituencies.

Rahman called for the decentralisation of power.

Second, he said the country should be made capable in terms of institutional functionality. Third, democratic behaviour must be practised and embedded immediately.

"It may take time, but there is no way to sit idle, saying it will take time. So practice should start," he said.

The book was published by Aloghar Prakashana. M Humayun Kabir, president of the Bangladesh Enterprise Institute, also spoke at the launch.​

 

[Saif]

Micromanaging should not be Bangladesh Bank’s job

BB must change its identity from an enforcer to an ecosystem architect.

www.thedailystar.net

Micromanaging should not be Bangladesh Bank’s job

VISUAL: FREEPIK

Over the last three decades, Bangladesh Bank (BB) has become an increasingly operational regulator. Today, it reviews foreign loan approvals, dollar deposit flows, and large-ticket transactions on a case-by-case basis, making BB's role more cautious yet reactive, instead of strategic. A developing economy that wants to be a middle-income nation, such micromanagement is no longer tenable.

Globally, modern central banks focus on frameworks, not transactions. The Federal Reserve sets macro-prudential tools—capital adequacy norms, systemic liquidity thresholds, and risk-weighted asset requirements—without intervening in individual deals. The European Central Bank supervises systemic institutions but delegates day-to-day approvals to the banking layer. Even the Reserve Bank of India (RBI), long criticised for micromanagement, has shifted toward a supervisory approach that enables self-regulation through compliance-based incentives.

BB's current role in vetting each dollar deposit linked to external commercial borrowing illustrates the core issue. Instead of setting clear rules of eligibility, compliance documentation, and risk-based pricing bands, it approves every inflow manually. This adds friction, delays, and promotes opacity. According to data from the Bangladesh Investment Development Authority (BIDA), average approval cycles for foreign loans exceed 30-45 days, undermining competitiveness in global capital markets.

Besides, the strict enforcement of the Internal Credit Risk Rating System (ICRRS) has had unintended consequences. While aiming to protect banks from poor credit exposures, it disproportionately blocks smaller borrowers from credit. Large political borrowers, often backed by implicit guarantees, face no such friction. This skewed outcome has starved innovation and enterprise finance and failed to stop the trillions of fraudulent loans in the country.

Banks, in this regime, have stopped asking fundamental questions such as how ICRR ties into forward cash flow predictability or sector-specific volatility. Instead, a compliance mindset has emerged: "Bangladesh Bank required it." Over time, such an attitude has eroded institutional thinking capacity, making banks passive executors rather than strategic financiers. That is perhaps the most damaging long-term cost—when a regulatory environment encourages blind compliance over judgment.

A forward-looking central bank must enable rather than control by defining boundaries, building ecosystems, and letting licensed banks operate with autonomy within those boundaries. This requires: i) shifting from transactional approval to risk-based frameworks; ii) institutionalising supervisory sandboxes and early-warning systems; and iii) enabling ecosystem development instead of direct regulation.

BB should replace transaction-level oversight with sectoral risk frameworks. This includes pre-approved External Commercial Borrowing (ECB) routes for eligible companies with audited financials; risk-weighted credit windows for banks based on their capital base and non-performing loan (NPL) history; dynamic asset-liability matching rules that incentivise long-term lending; and launching multiple sandboxes to test the regulation and policies.

Countries like Malaysia have implemented credit guarantee schemes and sandbox-based regulations that allow rapid experimentation under controlled exposure. According to reports from Bank Negara Malaysia, their innovation sandbox approved 38 new financial products in 24 months with less than one percent regulatory breaches.

BB must also institutionalise a proactive supervision model rather than waiting for banks to default or misreport by building an AI-backed credit risk surveillance tool that flags high-risk portfolios; conducting quarterly asset quality reviews for banks above a certain asset threshold; integrating non-banking datasets (e.g., utility payments, tax records) into borrower scoring; and moving away from collateral-backed lending, and acknowledging other forms of assets.

The Reserve Bank of India introduced a Central Repository of Information on Large Credits (CRILC), mandating banks to report exposures above 50 million Indian rupees. This has significantly improved stress recognition timelines.

BB should catalyse markets, not dominate them. This means licensing independent credit rating agencies and asset reconstruction companies; opening up private distressed asset markets; and facilitating interbank repo and derivative markets to improve price discovery.

Vietnam and Indonesia have liberalised their NPL disposal process, resulting in a 30-40 percent recovery improvement within two years of implementation. According to the World Bank, NPL resolution in Indonesia improved from 22 percent to 63 percent post-reform between 2016 and 2019.

These steps require BB to fundamentally redesign its identity from an enforcer to an ecosystem architect. It must trust its licensed entities to operate under risk-based guardrails and reserve interventions only for systemic risks.

The banking reforms recently outlined with support from the IMF, Asian Development Bank, and World Bank offer a unique opportunity. The Distressed Asset Management Act, the Bank Resolution Ordinance, and the proposed deposit protection enhancements are foundational shifts. However, their success will depend on execution and mindset change.

More critically, Bangladesh Bank must invest in building human capital—regulators who understand structured finance, international bond markets, and fintech-led credit models. Otherwise, BB will continue to regulate yesterday's risks with today's tools, while tomorrow's markets go ungoverned.

Mamun Rashid, an economic analyst, is chairman at Financial Excellence Ltd and founding managing partner of PwC Bangladesh.​

 

[Saif]

Strong banks see massive deposit growth

Several well-performing banks, led by BRAC Bank and City Bank, saw strong deposit growth in the year ending May 2025 as depositors shifted funds away from weaker institutions amid fear of collapse and loss of trust in bank governance...

www.newagebd.net

Strong banks see massive deposit growth
Crisis-hit lenders lose deposits
Mostafizur Rahman 27 July, 2025, 22:55

Several well-performing banks, led by BRAC Bank and City Bank, saw strong deposit growth in the year ending May 2025 as depositors shifted funds away from weaker institutions amid fear of collapse and loss of trust in bank governance.

Bankers said the shift reflects public frustration with troubled banks that continue to restrict withdrawals despite receiving substantial liquidity support from the central bank.

Despite Bangladesh Bank injected over Tk 35,000 crore into nine of the most distressed banks, several of them continued negotiating partial withdrawals due to overwhelming demand, further fueling public anxiety.

The situation worsened as the central bank began enforcing disciplinary measures, including the restructuring of bank boards, the initiation of special audits and merger process — steps that, while intended to restore order, triggered further unease among depositors who feared deeper instability.

Amid this crisis of confidence, depositors flocked to stronger, better-governed banks that are widely perceived as safer and more liquid, according to a Bangladesh Bank data.

BRAC Bank led the pack with a 35 per cent year-on-year deposit growth in May, with total deposits rising to Tk 78,460 crore.

It was at Tk 70,425 crore in December 2024.

City Bank followed with a 28 per cent rise, including its Islamic banking wing, reaching Tk 56,404 crore in deposits in May. It was at Tk 51,751 crore in December.

Jamuna Bank secured the third position, posting a 27 per cent growth to reach Tk 33,230 crore in May. Eastern Bank saw a 21 per cent rise to Tk 48,355 crore over the same period.

Pubali Bank, Dutch-Bangla Bank, and Trust Bank each registered 20 per cent deposit growth, with respective balances at Tk 80,084 crore, Tk 59,448 crore, and Tk 47,601 crore in May respectively.

Other banks showing robust growth include Mutual Trust Bank with 17 per cent, NCC Bank with 14 per cent, Bank Asia with 12 per cent, and Prime Bank with 11 per cent.

These banks are regarded as more resilient due to stronger compliance frameworks and healthier asset profiles.

Even Islami Bank Bangladesh, which has faced serious allegations of loan scams and mismanagement under the control of S Alam Group, managed to post a 7.48 per cent growth in deposits.

The bank began regaining depositor confidence after a major board overhaul in 2024. Its deposit base grew from Tk 1,58,435 crore in December to Tk 1,66,217 crore in May.

Banks associated with the S Alam Group experienced sharp declines.

Social Islami Bank posted a 17.38 per cent negative growth in deposits. First Security Islami Bank saw a 7.73 per cent fall, Bangladesh Commerce Bank 9 per cent, Global Islami Bank 7.15 per cent, National Bank 13.21 per cent, and Union Bank 2 per cent.

Exim Bank, which was under the control of NASSA Group saw 14 per cent fall in May.

The damage to these banks’ deposit bases was somewhat limited only because they restricted withdrawals, failing to meet depositor demands. Without such restrictions, bankers noted, the losses would have been much more severe.

According to central bank data, total deposits in the banking sector, excluding government and interbank accounts, stood at Tk 18,32,065 crore in May 2025, up from Tk 17,00,608 crore a year earlier—representing a 7.73 percent year-on-year increase.

However, bankers said the growth is sharply uneven. While strong banks continue to attract growing volumes of deposits, weaker banks remain under intense liquidity stress.​