The newly introduced incentive bonus regulations for private banks by Bangladesh Bank have sparked serious concern among banking professionals, who fear that the measures may effectively dismantle performance-based reward systems in the sector. While regulators argue the policy is necessary to ensure financial discipline, private bank employees view it as disproportionately harsh when compared to the leniency afforded to state-owned banks.
Under the revised rules, private banks must meet a stringent set of conditions before being allowed to pay incentive bonuses. These include achieving net profit based solely on actual income and expenses, maintaining adequate capital and statutory reserves, and demonstrating visible improvements in loan recovery and operational indicators. Any reliance on regulatory concessions, such as deferred provisioning or delayed reserve requirements, automatically disqualifies a bank from paying bonuses.
This represents a significant shift from previous practices, where banks could adjust financial results under certain allowances while still recognising employee contributions through incentive payments. The central bank’s insistence that such adjusted profits cannot be considered for bonus eligibility has been described by industry insiders as a “zero-tolerance” approach.
By contrast, state-owned banks remain under the jurisdiction of the Ministry of Finance’s Financial Institutions Division, which has adopted a more flexible stance. According to its guidelines, even loss-making public banks may distribute at least one incentive bonus with ministerial approval. Although the number of bonuses is capped at three, the provision allows for discretionary relief that is entirely absent from the private sector framework.
Critics argue that this imbalance reflects deeper structural issues in regulatory governance. While private banks are held to strict prudential standards, state-owned banks—many of which struggle with high levels of non-performing loans and chronic capital shortages—are granted exceptions that undermine market discipline.
Private bank officials say the new policy ignores operational realities. Banking institutions often face temporary capital pressures due to provisioning requirements or macroeconomic shocks, yet continue to generate core operating profits. Employees working under such conditions, they argue, should not be deprived of incentives solely due to regulatory accounting constraints.
Another major point of contention is the ban on using retained earnings to fund bonuses. In many private banks, accumulated profits serve as a buffer that supports both capital adequacy and employee incentives. By prohibiting this practice, the central bank has removed a key mechanism that banks used to balance prudence with motivation.
The timing of the policy has also raised concerns. Many banks customarily announce incentive bonuses immediately after the close of the financial year. With the new rules in place, most institutions are expected to fall short of eligibility, effectively freezing bonuses across the sector.
Financial analysts caution that the policy could have unintended consequences. Reduced incentives may weaken employee motivation, encourage skilled professionals to seek opportunities outside the regulated banking sector, or even push talent towards state-owned institutions where bonus prospects appear more secure.
While Bangladesh Bank maintains that the policy is essential to restore discipline and prevent excessive payouts, critics argue that a more balanced framework—one that aligns public and private sector standards—would better serve the stability and competitiveness of the banking industry.