[🇧🇩] Banking System in Bangladesh

[Saif]

The Financial Express | First Financial Daily of Bangladesh

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Reform cannot wait as banking crisis deepens

Published :
Jun 22, 2026 00:30
Updated :
Jun 22, 2026 00:30

The country's banking sector continues to make screaming headlines. Recent media reports inform that, by the end of 2025, distressed loans across all scheduled banks had surged by more than 47 per cent to Tk 10.08 trillion --- an amount that exceeds the size of the proposed national budget for the fiscal year 2026-27. As mounting bad loans eroded earnings of most of the banks, the sector collectively posted a staggering net loss of Tk 1.3 trillion last year. Thus the banking sector's woes, stemming from years of systematic looting under the previous Awami League government, show little sign of abating. On the contrary, the sector now finds itself on the cusp of yet another crisis. According to recent report published in this newspaper, banks' profitability is being squeezed by a shrinking net interest margin (NIM), raising serious concerns about the long-term sustainability and stability of the banking industry.

The deterioration in banks' net interest margin offers a clear indication of the sector's worsening financial health. NIM, which measures the difference between interest earned on loans and interest paid on deposits relative to interest-earning assets, is a key indicator of the profitability of a bank's core business. According to the Bangladesh Bank data, the sector's aggregate NIM plunged from 1.30 per cent in 2024 to a negative 0.49 per cent in 2025. Officials attribute this sorry state of affairs largely to the explosion of non-performing loans. As things stand, many banks are earning little or no income from a significant portion of their assets stuck as NPL, yet they must continue to honour their obligations to depositors. The industrial slowdown in recent years has further exacerbated the situation by dampening credit demand and weakening borrowers' repayment capacity. Consequently, banks with ample liquidity are increasingly opting to invest in government treasury instruments rather than extending fresh loans in a high-risk environment, while those grappling with liquidity shortages are bearing the brunt of the crisis.

The implications of this crisis extend far beyond the banking industry itself. In his budget speech, the finance minister outlined a three-stage strategy for the economy --- recovery and stabilisation, followed by restoration and growth. However, experts are of the view that as long as the financial sector remains mired in crisis, the vision of economic recovery and sustained growth will remain out of reach. The banking sector is the lifeline of the economy, with its assets equivalent to roughly half of the country's GDP. The government, too, relies heavily on banks to finance its budget deficits. Nearly half of the proposed Tk 2.43 trillion budget deficit for the coming fiscal year is expected to be financed through borrowing from the banking sector. Therefore, a weak banking sector cannot support economic recovery and growth. Restoring the health of the financial sector must be a top priority.

The government has already injected around Tk 520 billion into five merged Islami banks and the central bank has extended special liquidity support to at least 12 troubled private banks. However, injecting public funds into troubled banks without addressing the underlying governance failures cannot provide a lasting solution. What the sector needs is a comprehensive reform aimed at prompt resolution of nonviable institutions, ensuring adequate depositor protection, reforming state-owned banks, strengthening governance and risk management etc. To this end, the government should consider establishing a high-powered banking reform commission comprising independent experts.​

 

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How to restore the moral compass of corporate banking

For years, corporate banking in Bangladesh has been built not simply on lending but also on stewardship.

www.thedailystar.net

How to restore the moral compass of corporate banking

Rahel Ahmed

VISUAL: MAGNIFIC

For years, corporate banking in Bangladesh has been built not simply on lending but also on stewardship. Branch managers and, later, relationship managers (RM) used to be trusted advisers who understood industries, warned against reckless expansion, and often served as an informal early warning system for entrepreneurs carried away by growth. They also supported businesses through the cycle’s ups and downs.

That culture is now, unfortunately, fading. Corporate banking has become increasingly transactional, profit-driven, and incentive-obsessed. In many banks, RMs are judged less on the quality of their judgement than on loan book growth, fee income, and balance sheet expansion. The result is a culture in which caution is often punished, aggressive lending is rewarded until stress emerges, and the relationship is treated as secondary.

Bangladesh’s recent corporate distress stories reveal an uncomfortable truth: many large business groups, excluding those that deliberately syphoned money from the system, did not run into trouble overnight. Their vulnerabilities were visible for years. Yet, banks continued to finance expansion, refinance obligations, syndicate facilities, and compete for exposure without the moral courage to say “no.” One reason may be the large number of banks chasing a limited pool of major corporate names.

As a recent example, the difficulties surrounding parts of the City Group ecosystem should prompt industry-wide introspection. Debt-fuelled diversification and ambitious capital expenditure don’t happen in isolation; they are enabled and repeatedly financed by banks. During the boom years, many lenders participated enthusiastically because no one wanted to lose market share or relationship prestige. Some senior bankers built reputations, and even careers, on this relationship. But when stress emerged, the same system shifted into self-preservation mode. Instead of coordinated rehabilitation, many lenders shortened tenors, restricted fresh facilities, intensified recovery pressure, and distanced themselves from clients they had once celebrated. That may protect individual balance sheets in the short term, but it can also deepen broader economic instability. There have been exceptions when relationship banks worked together to help a sound business through a difficult phase. That should be the rule, not the exception.

This is not how relationship banking was meant to function. Strong banking systems are built on the idea that banks remain partners through cycles, not merely financiers during prosperity. After the Asian financial crisis of 1997, several East Asian systems learnt hard lessons about indiscriminate lending and weak advisory oversight. Many also recognised the importance of restructuring viable businesses rather than abandoning them during temporary distress. Japan’s experience, despite criticism over “evergreening,” showed that coordinated lender support can sometimes prevent wider industrial damage during fragile periods. After the 2008 global financial crisis, many international banks similarly reassessed their relationship model. Institutions such as Standard Chartered and Bank of America Merrill Lynch openly emphasised that corporate banking could not remain merely product-selling oriented; advisory capability, industry understanding, and long-term partnership had to move back to the centre.

Bangladesh once had bankers who embodied that philosophy. Veteran bankers from foreign and leading local banks often played mentor-like roles for the first generation of entrepreneurs after independence. They advised clients against unrelated diversification, cautioned against excessive leverage, and sometimes refused financing for projects that lacked strategic rationale. As banker Mamun Rashid has observed, relationship managers once “went the extra mile” not merely to disburse loans, but to help clients run businesses prudently with an eye on the future.That culture mattered because the country’s corporate sector has long depended far more on bank financing than on deep capital markets. In such an environment, banks are not passive lenders; they are gatekeepers of economic discipline, with responsibilities that extend beyond credit approval and collateral documentation.

More than three decades ago, when I began my banking career at ANZ Grindlays Bank as a young RM, we were trained to evaluate conglomerates by looking at sector cyclicality, foreign exchange exposure, governance quality, succession risks, concentration risk, and debt sustainability. If a business group was expanding rapidly into unrelated sectors with rising leverage, it was the RM’s duty to flag that concern internally, even if doing so slowed the bank’s revenue growth.

Unfortunately, incentive structures often encourage the opposite. Aggressive loan growth wins immediate recognition; prudence rarely does. In many banks today, RMs are treated as sophisticated sales personnel rather than strategic financial partners. Credit risk teams are too often reduced to procedural gatekeepers instead of empowered institutional counterbalances. Meanwhile, the race to capture marquee corporate names weakens underwriting discipline across the sector. The cost is visible not only in rising stressed assets but also in the erosion of trust between banks and corporates.

Therefore, the banking sector in Bangladesh needs to rediscover the original meaning of relationship management. RM performance metrics must be redesigned so that evaluations reflect long-term asset quality, sustainability of financed projects, client governance standards, and early risk identification, not just annual business growth. Banks should also build sector-specialised advisory capability so that those covering textiles, power, FMCG, infrastructure, or commodities bring real industry understanding rather than only sales skills. During periods of corporate stress, lenders should pursue coordinated restructuring where viable businesses exist; disorderly withdrawal by all lenders at once often destroys value for everyone.

The Bangladesh Bank and bank boards must also recognise that banking is not merely a profit-maximising business. It is a public trust institution central to economic stability. The collapse of a large corporate borrower affects not just one balance sheet, but suppliers, employees, SMEs, export flows, investor confidence, and the wider economy.

Relationship managers carry responsibilities that are not only commercial but moral. The industry needs to remember that again.

Rahel Ahmed is a banker and banking industry analyst.​