Repairing the broken promise of banking
Shah Md Ahsan Habib
Published :
Feb 26, 2026 23:29
Updated :
Feb 26, 2026 23:29
An inside view of a commercial bank in Dhaka —FE File Photo
Public trust in Bangladesh's banking system has been gradually weakening. Not through sudden panic, but through steady hesitation. Over the past decade, structural weaknesses within the sector have eroded the fundamental promise of safety that depositors rely upon. Rising non-performing loans, governance lapses, political influence in lending, periodic liquidity stress, hurried mergers, and unclear bank resolution processes have contributed to uncertainty. Repeated recapitalisation of state-controlled banks using public funds has reinforced concerns about sustainability.
While a few institutions have demonstrated relatively resilient performance, the sector's overall condition remains fragile and continues to warrant concern. One of the most critical weaknesses has been limited depositor protection visibility. When citizens become unsure about safeguards, confidence slows before withdrawals begin. In segments of Islamic banking, reputational strain has been more pronounced. Institutions long perceived as ethically grounded and stable have faced scrutiny over governance standards and related-party exposures. Trust, once unsettled, requires consistent institutional effort to rebuild.
The newly elected government now carries a defining responsibility. Strengthening depositor and public confidence must become central to building a sustainable banking system. This is not merely a technical reform agenda. It is a national economic priority. Restoring and strengthening public confidence in the banking industry must sit at the core of financial policy.
The gradual erosion of trust did not occur overnight. It reflected repeated signals. Depositors observed large loan defaults with limited visible accountability. They saw politically exposed borrowers receive repeated restructuring facilities. They noticed delayed supervisory intervention in distressed institutions. They witnessed uncertainty surrounding weak banks without clear resolution pathways. In Islamic banking, expectations were higher due to ethical positioning. When governance shortcomings emerged, reputational damage intensified. When values and operational practices appear misaligned, public confidence adjusts accordingly.
Any meaningful reform must begin with a clear principle. Depositors are not equity investors pursuing high risk and high return. They are citizens safeguarding savings within a regulated framework. Their protection is a public responsibility. A sustainable banking system rests on strong governance, transparent supervision, and firm political commitment to non-interference. The government must clearly communicate, and consistently demonstrate, that depositor funds are protected as a matter of national policy. This principle should guide board appointments, enforcement decisions, supervisory actions, and crisis responses.
Political commitment is the starting point. Structural reforms cannot succeed without it. Independent bank boards must be appointed through transparent and merit-based processes. Senior management appointments must prioritise professional competence and integrity. Regulatory officials must be protected from arbitrary pressure. Enforcement against wilful defaulters must be consistent and transparent. Selective enforcement erodes credibility. Equal application of law strengthens it. The public must observe that regulatory and legal standards apply uniformly, regardless of influence or affiliation. Confidence grows when accountability becomes visible and impartial.
Regulatory approach is critical. Supervisory mandates should be clearly defined and insulated from external interference. Oversight must become forward-looking rather than reactive. Regular stress testing, stronger early warning systems, improved risk-based supervision, and prompt corrective measures can reduce systemic vulnerability. Delayed intervention increases fiscal cost and reputational damage. Effective supervision reassures depositors that risks are being monitored and addressed before escalation.
Deposit insurance mechanisms must become both credible and widely understood. The recent increase in insured deposit coverage is a constructive step. However, coverage remains modest relative to average urban deposit balances and inflation trends. Periodic review of the ceiling is necessary to preserve real protection value. Depositors require clarity regarding coverage limits, pay-out timelines, trigger conditions, and the institutional backing of the insurance scheme. Compensation procedures must be time-bound, transparent, and operationally efficient. Clear communication is essential. Bangladesh Bank and the government should publish simplified explanatory materials detailing how deposit insurance operates and what depositors can expect during stress events. Public awareness campaigns through mass media and digital platforms can strengthen understanding and reduce speculation. Protection frameworks strengthen confidence only when they are both credible and clearly visible.
Islamic banking requires focused institutional strengthening. Independent and qualified Shariah supervisory boards must operate with transparency and professional integrity. Internal audit and compliance functions need reinforcement. Ownership structures and management responsibilities must remain clearly separated. Related-party exposures should be disclosed transparently and monitored rigorously. Regular public reporting on financial health and Shariah compliance should become standard practice. Confidence in Islamic banking will be restored when governance standards are demonstrably robust and consistently applied.
Consumer protection mechanisms must also evolve. A strengthened and independent financial ombudsman framework can provide timely and impartial resolution of depositor complaints. Standardised disclosure formats for deposit and savings products can reduce information asymmetry. Digital grievance redress platforms can enhance accessibility and response time. Financial literacy initiatives should expand nationwide, particularly in rural and semi-urban regions where awareness gaps persist. Informed depositors feel more secure and less reactive during uncertainty. Protection frameworks must function effectively in practice, not merely exist within regulatory texts.
Transparency must become embedded in institutional culture. Banks should publish simplified quarterly performance summaries accessible to general audiences. Clear disclosure of risk exposures, capital adequacy positions, governance structures, and board composition can strengthen credibility. Regulators, within legal boundaries, may share information on supervisory actions to demonstrate oversight effectiveness. Limited but meaningful disclosure reassures markets and citizens alike. Predictable systems prevent panic. Rule-based processes replace speculation with assurance.
Communication strategy is equally essential. During financial stress, silence can unintentionally amplify uncertainty. Regular, fact-based communication from policymakers and regulators stabilises expectations. Public briefings, timely clarification of misinformation, and clear articulation of reform measures help maintain confidence. Institutional credibility depends not only on balance sheet strength but also on transparency of intent.
Rebuilding depositor confidence will require sustained effort. It cannot be achieved through isolated policy announcements or short-term liquidity injections. Structural reform, political restraint, regulatory autonomy, effective consumer protection, decisive action on non-performing loans, and visible accountability must operate together. Banking functions on public trust. It is a social contract between depositors, institutions, regulators, and government. That contract has experienced strain. Repairing it demands integrity, consistency, and long-term commitment.
Capital adequacy ratios remain important. Liquidity buffers remain necessary. Prudential compliance remains essential. Yet beyond these technical indicators lies a deeper asset. Trust is the most valuable capital in any banking system. When depositors feel secure, funds remain within the formal financial sector. When funding remains stable, lending can expand responsibly. When credit flows sustainably, economic growth strengthens.
The new government has an opportunity to reset institutional tone and rebuild credibility. By placing depositor protection at the centre of reform, ensuring regulatory independence, addressing non-performing loans firmly, strengthening Islamic banking governance, enhancing transparency, and reinforcing consumer protection, the foundation of confidence can gradually be restored. Confidence does not return overnight. It grows when policies are consistent, enforcement is impartial, and institutions are reliable.
Repairing the broken promise of banking is not only a matter of financial repair. It is about restoring belief in public institutions. When citizens once again feel assured that their savings are protected within a fair, accountable, and professionally supervised system, the banking sector will regain stability. Trust, carefully rebuilt, will sustain the industry more effectively than temporary liquidity support.
Dr. Shah Md Ahsan Habib, Professor, Bangladesh Institute of Bank Management (BIBM), and Chairman Dnet Bangladesh.
Bangladesh Defense
