[🇧🇩] Banking System in Bangladesh

[Saif]

Fewer bank dividends under new policy signal a weaker financial ecosystem

Bangladesh's banking sector is facing growing pressure as more than half of the banks failed to declare dividends for the year 2025. This situation reflects both the weak financial condition of many banks and the impact of stricter regulatory measures introduced by Bangladesh Bank. Under DOS Circu

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Fewer bank dividends under new policy signal a weaker financial ecosystem

MD. ZAKARIA

Published :
May 05, 2026 00:29
Updated :
May 05, 2026 00:33

Bangladesh's banking sector is facing growing pressure as more than half of the banks failed to declare dividends for the year 2025. This situation reflects both the weak financial condition of many banks and the impact of stricter regulatory measures introduced by Bangladesh Bank.

Under DOS Circular No. 01 dated 13 March 2025, Bangladesh Bank introduced a new "Dividend Declaration Policy against Shares." The main objective of this policy is to strengthen the financial stability of banks before they distribute profits to shareholders.

According to this circular, banks must meet several conditions to declare dividends. First, they must fully comply with the Bank Company Act and all regulatory requirements. If there is any shortfall in loan or investment provisioning, the bank is not allowed to declare dividends. Banks must also maintain the required Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Failure to maintain these requirements disqualifies them from distributing dividends.

The policy also places strong emphasis on loan quality. If a bank's non-performing loan (NPL) ratio exceeds 10 percent, it cannot declare any dividend. At present, around 29 banks have NPL ratios above 29 percent, which is one of the main reasons behind the widespread failure to declare dividends this year.

The policy also places strong emphasis on the Dividend Payout Ratio, which is calculated as the declared dividend divided by net profit after tax. Bangladesh Bank has set strict limits on dividend distribution to ensure that banks retain sufficient earnings to strengthen their capital base. Under the regulation, no bank can declare dividends exceeding 30 per cent of its paid-up capital or 50 per cent or 40 per cent of its net profit-whichever is lower-subject to meeting the requirements for adequate loan and investment provisioning and maintaining a Capital Adequacy Ratio (CAR) of at least 15 per cent or between 12.50 per cent and less than 15 per cent, as applicable. Furthermore, banks with a CAR above 10 per cent but below 12.50 per cent are permitted to declare only stock dividends, not cash dividends. These provisions ensure that only financially sound banks with adequate capital strength are allowed to distribute dividends, while relatively weaker banks retain earnings to improve their financial position.

The circular further states that if a bank receives any regulatory forbearance, such as deferred provisioning benefits, it cannot declare dividends during that period. This rule ensures that weak banks are not allowed to distribute profits without first addressing their financial vulnerabilities.

Due to these strict conditions, only 18 out of 52 banks declared dividends in 2025. Among the 36 listed banks, only 16 announced dividends. This has also negatively affected investor confidence in the stock market, as bank shares are traditionally considered attractive for regular dividend income.

Among the better-performing banks, several declared the maximum allowed dividend of 30 per cent. These include BRAC Bank, City Bank, Pubali Bank, Dutch-Bangla Bank, Prime Bank, and Uttara Bank. Jamuna Bank declared a 29 per cent dividend, while Eastern Bank declared 28 per cent. NCC Bank announced 21 per cent, and Bank Asia declared 17 per cent. Shahjalal Islami Bank and Trust Bank both declared 13 per cent, while Mutual Trust Bank (MTB) declared 12 per cent. Southeast Bank and Dhaka Bank each declared 10 per cent dividends, while Midland Bank declared 6 per cent. Outside listed banks, Community Bank and Bengal Commercial Bank also declared dividends.

However, many banks failed to declare any dividend. Islami Bank Bangladesh PLC, once a strong 'A' category bank, has now moved to the 'Z' category, indicating severe financial distress. Other banks that did not declare dividends include IFIC Bank, Standard Bank, UCB, Mercantile Bank, AB Bank, Al-Arafah Islami Bank, ICB Islamic Bank, National Bank, NRB Bank, NRBC Bank, ONE Bank, Premier Bank, and South Bangla Agriculture and Commerce Bank.

Some banks have also undergone mergers due to weak financial conditions. These include EXIM Bank, First Security Islami Bank, Social Islami Bank, Union Bank, and Global Islami Bank. These institutions are no longer operating independently, which has further impacted the overall banking landscape.

Among non-listed banks, Bangladesh Commerce Bank, Meghna Bank, Madhumati Bank, Padma Bank, and Shimanto Bank did not declare dividends. Citizens Bank earned profit but did not distribute dividends, possibly to strengthen its capital position.

State-owned banks are also under significant financial pressure. Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, BASIC Bank, Bangladesh Development Bank Limited (BDBL), Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), and Probashi Kallyan Bank were unable to declare dividends to the government.

One positive development is that all banks completed their financial statements on time this year. Bangladesh Bank also provided limited support by relaxing provisioning requirements for funds stuck in merged banks. The current situation clearly indicates that the banking sector remains under stress. High default loans, weak governance, and poor lending practices continue to be major challenges.

If more banks were able to declare dividends, it would have strengthened investor confidence and improved the overall financial ecosystem. Regular dividend distribution plays an important role in attracting investors and maintaining trust in the banking sector.

In conclusion, the new dividend policy is a necessary step to strengthen the banking sector. However, it also highlights the structural weaknesses of many banks. To improve the situation, banks must reduce non-performing loans, enhance governance, and strictly follow regulatory guidelines. Only then can the financial ecosystem of Bangladesh become more stable and resilient.

Md. Zakaria, First Assistant Vice President, CRM-CMSME Division, NCC Bank PLC.​

 

[Saif]

Rethinking Bangladesh's banking profession through the lens of global best practices

The banking sector is the lifeblood of any modern economy. It channels savings into investments, manages financial risks, and sustains economic growth. Yet for decades, Bangladesh's banking industry has struggled with a persistent and deeply rooted problem a workforce that lacks specialised p

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Rethinking Bangladesh's banking profession through the lens of global best practices

Shahidul Alam Swapan

Published :
May 05, 2026 23:37
Updated :
May 05, 2026 23:37

The banking sector is the lifeblood of any modern economy. It channels savings into investments, manages financial risks, and sustains economic growth. Yet for decades, Bangladesh's banking industry has struggled with a persistent and deeply rooted problem a workforce that lacks specialised professional knowledge. In response to this structural weakness, Bangladesh Bank has taken a bold and consequential step by amending its earlier circular on the Banking Professional Examination, commonly known as the Banking Diploma. Effective from January 2026, any officer of a bank or financial institution seeking appointment at a higher position in another bank must pass the Banking Diploma examination conducted by the Institute of Bankers, Bangladesh (IBB). Officers with 15 or more years of experience at the Senior Officer level, however, are exempt from this requirement.

This directive raises a question of profound importance: is it a well-reasoned reform rooted in global best practices, or merely a regulatory formality that risks falling short in practice? A careful examination of the policy, set against the backdrop of international banking standards, reveals both its considerable merit and the challenges that must be addressed to make it truly transformative.

To appreciate the significance of this directive, one must first understand the problem it is designed to address. Bangladesh's banking sector has long been characterised by appointments based on personal connections, political influence, and institutional loyalty rather than demonstrated professional competence. The consequences have been severe a steady rise in non-performing loans, recurring financial scandals, weak credit assessment practices, and a general erosion of public trust in the banking system.

A significant proportion of bank officers in Bangladesh hold general university degrees with little or no formal training in banking law, credit risk, financial regulation, or monetary policy. When such officers are promoted or transferred across institutions, the knowledge deficit travels with them. The Banking Diploma, comprising the Junior Associate of the Institute of Bankers Bangladesh (JAIBB) and the Associate of the Institute of Bankers Bangladesh (AIBB), is specifically designed to address this gap. It equips officers with structured, institution-specific knowledge that a general degree simply cannot provide. In this context, making the diploma a prerequisite for inter-bank promotions is not merely logical it is long overdue.

The United Kingdom offers one of the most instructive examples of how professional qualifications can reshape a banking culture. The Chartered Banker Institute (CBI) administers a tiered qualification framework comprising the Certificated Professional Banker (CCBI), the Associate Chartered Banker (ACBI), and the prestigious Chartered Banker (MCBI) designation. While these qualifications are not legally mandated, the Financial Conduct Authority (FCA) enforces the Senior Manager and Certification Regime (SMCR), which requires that individuals in senior banking roles demonstrate fitness and propriety before appointment. In practice, this has made professional certification a de facto requirement for career advancement.

What makes the UK model particularly noteworthy is that it is market-driven rather than regulatory-driven. Banks themselves demand qualified professionals because the cost of incompetence in the form of regulatory penalties, reputational damage, and financial losses is simply too high. Bangladesh has not yet developed this self-regulating professional culture, which is precisely why the central bank's regulatory intervention is not only justified but necessary.

The United States takes a different but equally rigorous approach. Rather than a single overarching banking diploma, the American system relies on a rich ecosystem of role-specific certifications. The Chartered Financial Analyst (CFA) designation is considered the gold standard for investment and asset management professionals. The Certified Financial Planner (CFP) credential governs financial advisory roles, while the Certified Risk Manager (CRM) qualification is essential for those managing institutional risk. This granular, role-based approach ensures that professionals are not just broadly educated in banking, but deeply expert in their specific domain.

For Bangladesh, this offers an important lesson. The current Banking Diploma framework, while valuable, is relatively uniform in its scope. As the sector matures, Bangladesh Bank and IBB should consider developing specialised modules covering areas such as Islamic banking, green finance, digital banking, and credit risk management so that the diploma evolves from a general qualification into a genuinely specialised professional credential.

Perhaps no country in the world offers a more compelling model for banking professionalism than Switzerland. As the home of UBS, and the globally respected Swiss National Bank, Switzerland has built a banking culture where professional excellence is not aspirational it is foundational. The Swiss Bankers Association (SBA) oversees the Swiss Certificate in Banking and Finance (SCBF) and the Swiss Diploma in Banking and Finance, both of which are widely recognised as benchmarks of professional competence. The Swiss Finance Institute (SFI) further offers advanced programmes for senior banking professionals, covering areas ranging from quantitative finance to regulatory compliance.

What truly distinguishes Switzerland is its celebrated Dual Education System. Under this model, banking professionals simultaneously pursue practical on-the-job training and formal academic instruction. A young banker does not simply study theory in a classroom and then enter the workforce they learn and work in parallel, with each experience reinforcing the other. This integration of knowledge and practice produces professionals who are not only theoretically sound but operationally effective from the very beginning of their careers.

Switzerland's financial regulator, FINMA (Swiss Financial Market Supervisory Authority), enforces a rigorous Fit and Proper standard for senior appointments. Before any individual can assume a leadership role in a Swiss bank, FINMA scrutinises their professional qualifications, ethical record, and technical competence. Crucially, FINMA also recognises extensive practical experience as a valid alternative to formal qualifications a principle that directly mirrors Bangladesh Bank's 15-year exemption clause.

Bangladesh would do well to draw inspiration from the Swiss model, not merely by mandating a diploma, but by working towards a system where learning and professional practice are genuinely integrated rather than treated as separate obligations.

Germany's approach to banking professionalism is deeply embedded in its broader vocational education philosophy. The IHK Certificate in Banking and Finance is a widely respected credential that forms the foundation of a banking career in Germany. France similarly maintains the Certificat de Compétences en Banque et Finance (CCBF) as a standard entry-level qualification. Across the European Union, the European Banking Federation (EBF) promotes Continuing Professional Development (CPD) as an ongoing obligation for all banking professionals not a one-time credential, but a lifelong commitment to learning.

This culture of continuous learning is perhaps the most important lesson Bangladesh can draw from Europe. The Banking Diploma should not be viewed as a box to tick on the way to a promotion. It should be the beginning of a professional journey, one that continues through regular training, updated knowledge, and ongoing engagement with the evolving landscape of global finance.

One of the most thoughtful aspects of Bangladesh Bank's directive is the exemption granted to officers with 15 or more years of experience at the Senior Officer level. This provision reflects a mature and balanced understanding of what professional competence truly means. Formal qualifications are important, but they are not the only measure of expertise. A banker who has spent a decade and a half navigating credit decisions, managing client relationships, and weathering financial crises has accumulated a depth of practical wisdom that no examination can fully capture.

This principle is well recognised internationally. The Chartered Banker Institute in the UK maintains an Experiential Route that allows seasoned professionals to gain recognition based on their career achievements. Switzerland's FINMA similarly accepts demonstrated experience as a valid basis for senior appointments. By incorporating this exemption, Bangladesh Bank has avoided the trap of rigid credentialism and struck a more equitable balance between formal education and lived professional experience.

The directive's intent is sound, but its success will depend entirely on the quality of its implementation. Several critical challenges must be addressed with urgency. The IBB examination syllabus must be rigorously updated to reflect the realities of modern banking. Topics such as fintech, digital payments, cybersecurity, environmental finance, and algorithmic risk management are reshaping the global banking landscape. A diploma that does not engage with these developments risks producing officers who are qualified on paper but unprepared for the challenges of contemporary banking.

The examination infrastructure also requires significant strengthening. Currently, examinations are held only twice a year. As the number of candidates grows in response to the new directive, the existing system may struggle to cope, leading to bottlenecks and delays that frustrate career progression. Online examination platforms and more frequent testing windows should be introduced without delay. Furthermore, banks themselves must be required to invest in preparing their officers for the diploma. Corporate training programmes, study leave, and financial support for examination fees should become standard practice across the industry.

Bangladesh Bank's directive is a meaningful and well-directed step, but it should be seen as the beginning of a larger transformation rather than an end in itself. The ultimate goal must be to build a banking sector where professional excellence is not compelled by regulation alone, but driven by a genuine culture of learning, accountability, and pride in expertise. When Bangladesh's bankers come to view their professional qualifications not as a bureaucratic hurdle but as a mark of distinction as their counterparts in London, New York, Zurich, and Frankfurt do the sector will have truly come of age.

Measured against the standards of the world's most sophisticated banking systems, Bangladesh Bank's directive stands as a rational, timely, and necessary reform. The United Kingdom, the United States, Switzerland, and Germany have each demonstrated, in their own way, that professional competence is the cornerstone of a trustworthy and resilient banking sector. Bangladesh is now moving in the same direction. The path ahead requires not just enforcement, but investment in curriculum, infrastructure, training, and above all, in the belief that a well-qualified banker is not a cost, but the greatest asset any financial institution can possess.

Shahidul Alam Swapan, Switzerland-based private banking and financial crime compliance expert, columnist, and poet.​

 

[Saif]

Bangladesh needs an Islamic interbank market

It has been quite some time since I started researching the structural shortcomings in Islamic banking in Bangladesh. In 1999, I authored one of the first comprehensive analyses of how Islamic banking operated in Bangladesh, and I recommended that the BB establish interest-free money market product

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Bangladesh needs an Islamic interbank market

M Kabir Hassan

Published :
May 09, 2026 01:07
Updated :
May 09, 2026 01:07

It has been quite some time since I started researching the structural shortcomings in Islamic banking in Bangladesh. In 1999, I authored one of the first comprehensive analyses of how Islamic banking operated in Bangladesh, and I recommended that the BB establish interest-free money market products. Twenty-five years later, the BB is announcing that it will begin operating an Islamic inter-bank money market by June 30. My immediate response was finally, and my second thought was: not like this.

The BB's announcement recognises a serious constraint on Islamic banking. Because the call-money market, which is used by conventional banks to lend short-term, uses interest-based arrangements prohibited by Shariah, Islamic banks cannot participate in the call-money market. Their only other option is to invest in the Bangladesh Government Islamic Investment Bond (BIIIB), which has been idle for many years. While a commercial bank's current account may go into overdraft during the day, if it goes into overdraft overnight, it has no organised method of borrowing from a commercial bank with excess reserves. This is a legitimate operational challenge, and an appropriately structured inter-bank money market would solve it.

However, the proposed solution reads as though it was drafted without regard to the disaster that has ravaged the industry for almost two years. You cannot construct a liquidity pipeline among banks when several of those banks have negative equity, pending fraud claims, and non-performing-loan ratios approaching 90 per cent. That is not liquidity management; that is the transmission of contagion risk with a Shariah-compliant label.

The BB reports that it has studied models in Malaysia, Indonesia, and Bahrain. However, it seems to have learned the wrong lessons. The success of Malaysia's Islamic Inter-Bank Money Market when it began trading in 1994 was due to the specific instruments that were traded on it: Bank Negara's investment issues, Bank Negara monetary notes, sale-purchase back agreements, and commodity murabaha contracts. Each of these was supported by real assets and subject to Shariah rulings issued by a centralised Shariah Advisory Council at Bank Negara. Bank Negara also established a separate settlement system for Islamic transactions, so that the funds are kept physically separated from conventional money.

Bangladesh has neither of these options available to it. There are no Shariah-compliant government securities actively being issued. There is no central bank Sukuk. There are no Islamic Treasury Bills. The proposed inter-bank market will primarily enable banks to place uncollateralised funds bilaterally amongst themselves on Mudarabah terms. This is bilateral lending, not an operating money market. To operate as a true money market, a marketplace needs tradable paper. Absent such paper, there is no price discovery, no benchmark rate, and no secondary market activity. In my edited volume, The Handbook of Islamic Banking (Edward Elgar Publishing Ltd., 2007), Sam Hakim outlined the structure of Islamic money market instruments in detail. Bangladesh Bank should review its analysis. The instruments must precede the marketplace, not follow it.

The real problem here is that the sector remains critically ill. Last year, five Islamic banks were forced to merge into Sammilito Islami Bank after their balance sheets collapsed under the weight of politically directed lending. One source reported that the S Alam Group withdrew approximately Taka 105 billion from Islami Bank Bangladesh Ltd. via a series of shell companies and insider loans. According to reports from the Bangladesh Financial Intelligence Unit (BFIU), more than Taka 93 billion of that amount was laundered. At year-end 2024, the Islamic banking segment had a Capital Adequacy Ratio of negative 4.95 per cent.

The research I completed with Molla, Farooque, and Mobarek (Journal of Financial Services Research) empirically demonstrated that the quality of Shariah Board governance has a demonstrably positive impact on risk outcomes in Islamic banking. Bangladesh provided evidence contrary to our empirical findings by demonstrating how Shariah Boards could be ignored and how Boards of Directors could become agents of a single conglomerate, subsequently converting each bank into a vehicle for looting. An inter-bank money market does not address that problem. On the contrary, it provides an additional means for banks lacking proper governance to access funding.

Bangladesh Bank has noted that Sammilito Islami Bank will likely find difficulty attracting inter-bank financing because counterparties will question its ability to repay. If Bangladesh Bank believes that this is correct, why has it failed to include measures within the market design that reflect this knowledge? For example, why have capital adequacy standards for participating banks not been included? Why have limits on counterparty exposure not been incorporated?

I do not oppose establishing an inter-bank money market. I simply believe that it should not occur in a vacuum. Several conditions must be met prior to or contemporaneously with the establishment of an interbank money market.

Firstly, the Bangladesh Bank must develop the necessary instruments. Bangladesh Bank must issue Murabaha-based or ijarah-based central bank securities, which Islamic banks can use as investments, as tradables in markets, and as collateral for other trades until such time as these instruments exist; there is nothing for traders to buy or sell.

Secondly, Bangladesh Bank must specify eligibility requirements for participating banks. All banks that fail to meet minimum capital adequacy ratios are ineligible for unsecured interbank borrowing. Such restrictions are common throughout jurisdictions that have developed successful inter-banking systems.

Thirdly, Bangladesh Bank must ensure the physical segregation of clearing processes for Islamic transactions from those for conventional transactions. Malaysia recognised this requirement more than thirty years ago.

Fourthly, Bangladesh Bank must provide for Shariah oversight mechanisms exclusive to the inter-bank money market. Our examination of the regulatory framework for Islamic banking in Bangladesh (Thunderbird International Business Review, Summer 2007), revealed virtually no presence of specialised Shariah regulation. Bangladesh Bank, however, constituted a Centralised Shariah Advisory Committee (SAC). Hopefully, the SAC of the Bangladesh Bank will take up this issue earnestly.

Lastly, Bangladesh Bank should not separate this effort from its overall reform programme. The enactment of the Bank Resolution Ordinance, changes to the provisions of the Bangladesh Bank Order that allow greater independence for the BB, the restructuring of the Boards of Directors of distressed banks, and the enactment of an Islamic banking law-- all represent prerequisites for creating a market that functions as intended. The sequence of events is important.

Islamic banking accounts for slightly less than one-third of total deposits in Bangladesh. Those monies belong to tens of millions of people who chose these banks because of their religious convictions. They were betrayed by politically connected operatives who hijacked these banks. Now, the central bank wishes to restore trust in them. Establishing an inter-bank money market correctly will be part of restoring their trust. Doing so incorrectly will result in another layer of complex financial infrastructure placed atop failing institutions.

Bangladesh Bank researched models in Malaysia, Indonesia, and Bahrain. The lesson from all three countries is identical: build your instruments, build your governance, build your oversight, then open your market. Build your foundation correctly; let the market develop accordingly. Depositors in Bangladesh cannot endure another failure caused by their bankers' incompetence.

Kabir Hassan is Professor of Finance at the University of New Orleans and the sole recipient of the Islamic Development Bank Prize in Islamic Banking and Finance (2016).​