[🇧🇩] Banking System in Bangladesh

[Saif]

Automated real-time monitoring of financial transactions to be introduced

All types of financial transactions across the banking sector are being brought under instant, automated monitoring. As a result, the Bangladesh Financial Intelligence Unit (BFIU) will be able to detect any financial crime committed through bank accounts in real time. According to the agency...

en.prothomalo.com

Automated real-time monitoring of financial transactions to be introduced

Shanaullah Sakib Dhaka
Updated: 27 Jan 2026, 17: 47

Bangladesh Bank Prothom Alo file photo

All types of financial transactions across the banking sector are being brought under instant, automated monitoring. As a result, the Bangladesh Financial Intelligence Unit (BFIU) will be able to detect any financial crime committed through bank accounts in real time.

According to the agency, once the new system is operational, all forms of financial crime, including anonymous loans, loan misuse, money laundering and trade-based fraud, will be detected immediately.

Mobile financial services (MFS) will gradually be brought under this initiative as well. With the introduction of the new system, Bangladesh will enter a new era of financial transaction oversight.

At present, the BFIU does not receive information on suspicious transactions, or STRs, in real time. The flow of such information depends entirely on the relevant bank. Moreover, under the existing framework, the agency receives no information on financial crimes committed through trade.

In this context, the BFIU has undertaken an initiative to bring all types of transactions under real-time, automated surveillance. This technology-driven and automated service has been named the Proactive Transaction Monitoring System (PTMS), or early-warning transaction monitoring mechanism.

A pilot phase of the system is scheduled to be launched later this month. Initially, 13 banks will be connected to the system, with all banks to be brought under its coverage in subsequent phases, according to relevant sources.

At present, the BFIU does not receive information on suspicious transactions, or STRs, in real time. The flow of such information depends entirely on the relevant bank. Moreover, under the existing framework, the agency receives no information on financial crimes committed through trade.

Speaking to Prothom Alo, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said, “If this system can be fully implemented, financial crimes in the banking sector will be reduced significantly.”

Stating that alongside bankers, all bank customers will also become more cautious, he further said, “If anonymous loans, fraudulent letters of credit and money laundering can be prevented, the country’s economy will develop rapidly. Many countries have progressed by adopting this system. We need to move in this direction without delay.”

Are CTR and STR mechanisms failing?

Under the current system, banks are required to submit a Cash Transaction Report (CTR) to the BFIU when cash deposits or withdrawals of Tk 1 million or more are made through banking channels. These reports must be submitted by the 22nd of each month.

In addition, banks must identify suspicious transactions as STRs and report them to the BFIU. However, reports are submitted only when banks themselves deem a transaction suspicious.

In many cases, banks fail to report serious offences, leaving financial irregularities beyond detection. Dishonest officials, directors and influential individuals exploit these loopholes. The agency also receives no information on trade-based money laundering or the laundering of loan funds.

This initiative will make everyone more cautious. Large-scale transactions may decrease----Ahsan Zaman Chowdhury, secretary general, ABB, and MD of Trust Bank.

According to BFIU data, although the volume of STRs increased in the 2024–25 financial year compared to 2023–24, around 80 per cent were related to routine banking transactions. There were very few allegations concerning trade-based money laundering or loan irregularities. As a result, agency officials believe that the existing preventive mechanisms are not effectively reducing risks related to money laundering and financial misconduct.

How PTMS will work

The PTMS is being introduced as a technology-based, automated system to prevent irregularities in the financial sector. Through this technology, the source and destination of every transaction conducted through banking channels will be identified, and automated early-warning alerts will be generated for any transaction that is inconsistent with the account profile.

These alerts will be transmitted automatically to the relevant bank branch, the bank’s head office, and the BFIU. This will enable the BFIU to take immediate action in cases of large or abnormal transactions.

Relevant officials noted that under existing regulations, customers are required at the time of opening a bank account to declare the sources from which funds will be deposited and the purposes for which funds will be spent. Under the PTMS, an alert will be issued if a loan is not used for its declared purpose.

According to them, under the new rules, key indicators, including the nature and capacity of importers’ and exporters’ businesses, beneficiary information and the flow of funds, will be incorporated at the time of opening letters of credit.

In the initial pilot phase, 13 banks will be connected to the new system. These are Sonali Bank, The City Bank, Dutch-Bangla Bank, BRAC Bank, Islami Bank, United Commercial Bank, Bank Asia, Southeast Bank, South Bangla Agriculture (SBAC) Bank, Trust Bank, Mutual Trust Bank, Eastern Bank and Prime Bank.

Following the pilot phase, the BFIU aims to roll out the system across all banks within the current year.

Asked about the initiative, Ahsan Zaman Chowdhury, secretary general of the Association of Bankers, Bangladesh (ABB), and managing director of Trust Bank, told Prothom Alo, “This initiative will make everyone more cautious. Large-scale transactions may decrease.”

“With proper oversight, financial crimes will decline in the future, which will have a positive impact on the economy. This initiative will be beneficial for the country’s financial sector,” he added.​

 

[Saif]

Designing tax reform that works

Tax policy in Bangladesh has long been driven by what is easiest to collect rather than what is fair or efficient. High trade taxes and transaction-based levies have filled revenue gaps left by weak income assessment and limited information. This has created a system where compliance is often more

thefinancialexpress.com.bd

Rationalising microcredit interest rates

FE
Published :
Feb 02, 2026 00:04
Updated :
Feb 02, 2026 00:04

As the government seeks to reform the microfinance sector, which has long been plagued by irregularities and high interest rates, a crucial question has emerged: should lending rates of microfinance banks be capped? The newly promulgated Microfinance Bank Ordinance proposes transforming eligible microfinance institutions into specialised banks operating under a social business model. Under this framework, dividends for investors would be capped at the level of their total investment, while profits beyond capital recovery would be reinvested for social purposes. The ordinance states that the banks' primary objective would be to create new entrepreneurs by providing loans with or without collateral, and thereby to support job creation and poverty reduction. A critical issue, however, remains conspicuously absent from the ordinance: the interest rates these microfinance banks will be allowed to charge.

On this point, the Financial Institutions Division (FID) under the Ministry of Finance is in favour of capping lending rates of microfinance banks in line with commercial banks. Some economists, however, propose that interest rates should be left to market competition, arguing that borrowers' freedom to choose lenders will compel banks to offer loan at competitive rates. However, if past experience of microcredit operation in Bangladesh is anything to go by, giving a free rein to micro lenders can be tricky. Microfinance Institutions (MFIs) once used to charge borrowers 30-40 per cent interest. Then in the face of widespread backlash and international criticism, the Microcredit Regulatory Authority (MRA) was formed in 2006. The MRA capped microcredit interest rate at 27 per cent in 2010. Later in 2019, the MRA further lowered it to 24 per cent, which is effective till to date. Critics argue that the existing interest rate is still excessively high, particularly because the effective interest rate often rises well beyond the stated cap due to compound interest, where borrowers end up paying interest on accrued interest. Considering this, the FID's move to cap interest rates of microfinance banks and push for the introduction of a simple interest system in place of compound interest is welcome.

The current rate of interest rate on microcredit is disturbing for several reasons. First, there is a clear issue of disparity. Whereas the wealthier sections of society can borrow from commercial banks at interest rates of around 12 per cent, it is unacceptable that the poor microcredit borrowers are required to pay more than twice that rate. Then, the repayment on loans starts from the very first week, which gives borrowers almost no time to establish an income-earning enterprise. To cover the instalments of first few weeks, borrowers often have to resort to taking out a further loan from a different NGO. Thus, much of the repayment of the loan is in fact a fresh loan in disguise, contracted from other agencies to pay off the old debt and save the borrower from default. Thus in many cases the recipients far from getting enriched find themselves stuck in a vicious cycle. To free themselves from this trap, many of them end up selling their cows, farmlands and homesteads. In worst case scenarios, many even commit suicide.

Ideally, the primary objective of microcredit is poverty eradication. In practice, however, it has become a lucrative business for some NGOs, trading on poverty and exploiting the poor. Only time will tell whether the government's move to establish microfinance banks can turn the tide and stop the exploitation of the poor.​

 

[Saif]

IMF cautions against unsecured liquidity support to weak banks

The Washington-based multilateral agency made the observation in a statement issued yesterday

www.thedailystar.net

IMF cautions against unsecured liquidity support to weak banks

31 January 2026, 11:01 AM
UPDATED 31 January 2026, 14:15 PM

Photo: REUTERS/FILE

The International Monetary Fund has cautioned against unsecured liquidity injections into weak banks in Bangladesh and urged full implementation of exchange rate reforms.

The Fund highlighted the urgent need for a credible banking sector reform strategy consistent with international standards to restore stability.

“Such a strategy should include estimates of undercapitalisation, define fiscal support, and outline legally robust restructuring and resolution plans,” it said.

The Washington-based multilateral agency made the observation in a statement issued yesterday after its executive board completed the Article IV Consultation for Bangladesh last week as part of a review of the progress in implementing the conditions it tied with the $5.5 billion loans to Bangladesh.

The IMF encouraged the authorities to conduct asset quality reviews for all systemic and state-owned banks, advance risk-based supervision, and strengthen governance and balance sheet transparency.

It said maintaining a tight policy mix is necessary to keep rebuilding foreign exchange reserves and reducing inflation. The Fund stressed the importance of full and consistent implementation of the exchange rate reform and greater exchange rate flexibility, while cautioning against unsecured liquidity injections into weak banks.

“Monetary policy should remain appropriately tight until inflation is firmly on a downward path,” it said, noting that inflation remains elevated despite a slight moderation.

The IMF said headline inflation fell from double-digit levels in early FY25 but remained elevated at 8.2 percent in October.

Inflation is projected to remain elevated at 8.9 percent in FY26 before subsiding to around 6 percent in FY27. “Risks to the outlook are tilted to the downside, mainly from delayed or inadequate policy action and reversals of exchange rate reform and fiscal discipline.”

“The economy continues to face mounting macro-financial challenges from weak tax revenue and financial sector vulnerabilities, with significant downside risks stemming from delays in the implementation of bold fiscal and financial reforms,” the IMF said, projecting Bangladesh’s economic growth at 4.7 percent for FY26.

It said the economy is expected to recover gradually over the medium term, with growth projected to accelerate to around 6 percent over the medium term.

Policies should focus on safeguarding fiscal sustainability and strengthening macro-financial stability, while implementing comprehensive structural reforms over the medium term to strengthen governance, create jobs, and promote economic diversification, it said.

The IMF acknowledged the interim authorities’ efforts to stabilise the economy following the 2024 uprising and in the run-up to the upcoming national elections.

It, however, noted that Bangladesh faces mounting macroeconomic and financial challenges, as weak revenue mobilisation, banking sector vulnerabilities, incomplete implementation of the new exchange rate framework, and elevated inflation continue to weigh on macroeconomic stability and growth prospects.

The lender observed an uneven programme performance and emphasised that decisive and sustained policy actions and bold reforms are needed to restore macroeconomic and financial stability and support the country’s long-term development goals.

“The new administration’s full ownership of the programme will be critical, supported by early and active engagement with staff and efforts to secure stakeholder buy-in.”

Directors stressed the need for ambitious fiscal reforms and encouraged the authorities to undertake bold tax policy reforms, simplify the tax system, and strengthen tax administration and compliance to mobilise revenue, it added.

The Fund suggested rationalising subsidies, prioritising growth-enhancing investments, enhancing social safety nets, and improving public financial and investment management to support inclusive development and growth.

“Strengthening the financial viability of energy SOEs will also be important.”​