Bangladesh's economic achievements over the past decades are at risk due to severe financial sector challenges. The banking sector is facing a crisis, with non-performing loans (NPLs) exceeding 30 per cent, capital and liquidity shortages, weak governance, and regulatory inefficiencies. Meanwhile, the capital market remains underdeveloped, lacking both investor confidence and proper oversight.
Without bold, structured reforms, these systemic weaknesses are likely to lead to financial instability, economic stagnation, rising inflation, and increased business costs. Immediate action is essential to restore banking sector resilience, rebuild capital market trust, and ensure long-term economic sustainability. A comprehensive financial sector restructuring strategy, prioritising national interests over political and vested interests, must align with global best practices.
The banking sector is facing critical challenges that threaten its stability and growth. These challenges include soaring NPLs, averaging over 35 per cent, with some banks exceeding 60 per cent, compared to the global norm of below 10 per cent; capital and liquidity shortages; weak governance and political interference; regulatory inefficiency; technological gaps; corruption and fraud; macroeconomic instability; and rising global pressure to adopt green financing and sustainable practices-all of which require a strategic shift in lending models and alignment with economic goals.
Bangladesh must adopt proven reform models from countries like the USA, India, Japan, South Korea, and Indonesia, which have successfully tackled banking crises through structured transformations.
As the country is failing to manage NPLs with existing tools, we can follow the models of countries like Japan, the USA, India, and South Korea, which have successfully tackled the problem of NPLs.
Other models could also be followed to strengthen governance and reduce political interference, enhance regulatory frameworks, foster digital transformation and cybersecurity, improve financial inclusion and literacy, manage macroeconomic risks, combat corruption and fraud, and promote green financing and ESG compliance.
Bangladesh should categorise banks by specialisation to prevent excessive diversification, such as retail banks that mainly provide consumer-focused services, corporate and SME banks for industrial financing, Islamic banks for Shariah-compliant financial models, digital and fintech banks that provide mobile financial services, and remittance and expatriate banks specifically for serving the NRB community.
The government should buy back NPLs from banks or issue low-interest bonds to absorb bad assets.
Alternatively, the government could issue long-term bonds to the general public and use the proceeds to replace NPLs on bank balance sheets. This would inject liquidity into the system while ensuring public participation in financial stability. In addition, stricter legal penalties should be imposed on willful defaulters and bank loan fraudsters.
To maintain inflation at a stable rate and ensure sustainable economic growth, stricter lending criteria should be enforced. However, lending should also be made available at lower costs to productive sectors to stimulate business growth.
By implementing these measures, Bangladesh can restructure its banking sector, eliminate NPL burdens, ensure liquidity flow, and create a more resilient financial system for steady economic growth.
Institutional reforms in the country's banking sector should include, importantly, strengthening Bangladesh Bank's autonomy, creating specialised agencies, adopting technology to prioritise digital infrastructure and cybersecurity, maintaining global standards by aligning with Basel III, FATF AML guidelines, and ESG frameworks, fostering public-private partnerships, decoupling banking decisions from political influence, and publishing NPL data while involving civil society in oversight to ensure public accountability.
The banking sector is the backbone of Bangladesh's economy, and its restructuring must be driven by national interest, financial discipline, and long-term sustainability. Without immediate reforms, investor confidence will weaken, business costs will rise, and financial instability will persist.
Bangladesh must replicate global successes by strengthening institutions, leveraging technology, and enforcing zero tolerance for corruption. By adopting global best practices and ensuring governance reforms, Bangladesh can build a resilient, liquid, and efficient banking sector, supporting SME growth, industrialisation, and foreign investment.
The time for debate is over-bold, immediate, and structured actions are necessary to secure Bangladesh's financial future.
The writer is a former Managing Director of private commercial bank. fazlurrahman079@gmail.com
© 2025 - All Rights with The Financial Express
