Financial experts have issued a stark warning over the health of Bangladesh’s banking system, arguing that concealed bad loans, fragile governance and a disconnect between fiscal and monetary authorities are placing financial stability at considerable risk.
The concerns were raised at a workshop titled “Monetary Policy Statement: Relevance for Banks”, organised by the Bangladesh Institute of Bank Management at its Dhaka campus. Participants described a sector grappling with deep structural weaknesses that have long been obscured beneath headline figures.
Ahsan Ullah, adviser to former Bangladesh Bank governor Ahsan H Mansur, revealed that the true ratio of non-performing loans (NPLs) stands at 35.7 per cent — substantially higher than previously disclosed data. He acknowledged that impaired assets had been kept “under the carpet” for years, delaying essential corrective measures.
Banking Sector Stress Indicators
| Indicator | Current Estimate | Implication |
|---|---|---|
| Actual NPL ratio | 35.7% | Severe asset quality deterioration |
| Government borrowing from banks | Over Tk 1.3 trillion | Crowding out private credit |
| Inflation target | 4.0–5.0% | Increasingly difficult to achieve |
Dr Akhand Mohammad Akhtar Hossain, Chief Economist of the central bank, described the monetary environment as “ad hoc”, pointing to what he termed an “interlocking credit market system” shaped by entrenched interests. Such distortions, he argued, weaken the allocation of credit and intensify moral hazard. During inflationary periods, elevated nominal interest rates may inadvertently attract riskier borrowers, further aggravating asset quality concerns.
Panellists also criticised the persistent friction between the central bank and the Ministry of Finance. This lack of coordination, they suggested, undermines inflation management and diminishes the credibility of policy signals. Despite the central bank’s target of reducing inflation to between 4.0 and 5.0 per cent, external pressures — including volatile global fuel prices and domestic supply constraints — continue to complicate price stability.
Mohammad Ali, Managing Director and Chief Executive Officer of Pubali Bank PLC, warned that government borrowing exceeding Tk 1.3 trillion from the banking system risks squeezing private sector lending. He further noted a “flight to quality”, with stronger borrowers migrating to better-governed institutions, leaving weaker banks increasingly exposed.
The keynote paper, presented by Mahmud Salahuddin Naser of the Monetary Policy Department, outlined a reform agenda that includes risk-based supervision from January 2026, resolution planning for distressed banks, stronger governance frameworks, enhanced asset recovery mechanisms and the development of the domestic bond market. Initiatives to expand financial inclusion and promote a cashless economy were also emphasised.
Deputy Governor Nurun Nahar characterised the monetary policy statement as a strategic compass for banks, guiding liquidity management, credit strategy and compliance structures. The workshop was chaired by Dr Md Ezazul Islam, Director General of BIBM, who stressed the importance of research-led dialogue in restoring resilience and long-term stability to the banking sector.