Reforms in banking sector crucial for economic turnaround

Comprehensive reform of Bangladesh's financial sector, particularly the banking industry, is essential to stabilise the economy and support its gradual recovery, Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said on Tuesday.
He warned that the ongoing challenges in the banking sector could not be resolved through banking interventions alone, stressing that broader economic and political stability is necessary for sustainable growth.
"Crises arising in the banking sector cannot be resolved through banking interventions alone," said Prof Rahman.
He made the remarks while addressing a seminar titled "Budget 2026-27 and the Banking Sector: Expectations from the New Government", organised by research organisation Unnayan Shamannay with support from Bank Asia at its office in the capital's Banglamotor area.
Prof Rahman said irregularities in the financial sector increase the cost of doing business and undermine economic performance.
He noted that unless Bangladesh succeeds in reducing non-performing loans (NPLs) and ensuring political stability, the banking sector will continue to face significant challenges.
He also underscored the importance of ensuring the independence of Bangladesh Bank (BB).
"The central bank should be able to make decisions independently," he said, adding that while political pressure may exist, the BB should remain free from undue interference.
Bank Asia Managing Director Sohail RK Hussain, who attended the event as a special guest, said the economy remained vulnerable despite improvements in foreign exchange reserves and a gradual decline in inflation over the past one and a half to two years.
He observed that rising interest rates alongside elevated inflation signal underlying economic weaknesses.
The managing director also pointed out that 35 per cent of the country's non-performing loans are concentrated in just 12 banks, raising concerns about prospects for investment and economic growth.
A keynote paper presented by Dr Mahfuz Kabir, research director at the Bangladesh Institute of International and Strategic Studies (BIISS), highlighted the prolonged effects of high inflation, weak private investment, sluggish credit growth and governance challenges in the banking sector.
He said the upcoming national budget should prioritise restructuring and recovery of the financial sector while supporting economic activities, employment generation and entrepreneurship.
Dr Kabir also stressed the need to create a favourable environment for medium and large enterprises to accelerate private-sector investment.
Among the discussants, Dhaka University Banking and Insurance Department Chairman Dr Md Shahidul Islam Zahid said the private sector must play a leading role in boosting GDP growth. He advocated for developing a broader range of financial institutions so that financial intermediation is not concentrated solely in commercial banks.
Dr Zahid further noted that stronger government efforts to recover illicitly transferred funds from abroad would help build public confidence.
Prof Dr Rumana Huque of Dhaka University's Economics Department called for easier financing procedures for women entrepreneurs and increased allocations for the health and education sectors, which she said continue to receive inadequate attention.
The seminar was chaired by Unnayan Shamannay Emeritus Fellow Khandaker Shakhawat Ali.

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