As Bangladesh’s banking sector entered 2025, it faced a challenging environment marked by rising deposit costs, persistent inflation, sluggish credit demand, shrinking margins, and political uncertainty. However, the outlook was more favourable than expected, with profits not only stabilising but rising at several private banks — the so-called “good banks.”
The key to this success? Treasury income. In the face of limited lending opportunities, banks have turned to government securities, which have become the new backbone of profitability, transforming balance sheets across the sector.
BRAC Bank: Treasury Boosts Profit
At BRAC Bank, the shift towards government bonds has been particularly striking. Investment income surged from around Tk700–800 crore during 2020–2022 to a record Tk2,880 crore in 2024 — a fourfold increase in just two years. In the first nine months of 2025, BRAC Bank’s net profit rose by 50% year-on-year to over Tk1,553 crore, but its net interest income, the spread between loan earnings and deposit costs, fell by 7%.
The bank’s treasury income soared by 73%, lifting total operating income by 22%. Treasury operations now contribute over half (55.3%) of BRAC Bank’s operating income, a significant increase from 42% the previous year.
Managing Director Tareq Refat Ullah Khan noted that while the bank is seeing more deposits due to its credibility, lending opportunities have significantly decreased. He warned, however, that this bond-driven income is “unsustainable,” given the subdued industrial activity and low private sector credit growth.
City Bank’s Profit Surge
City Bank has also seen dramatic growth in treasury income, which has been crucial for its profitability. In the first nine months of 2025, its profit after tax jumped by 60% to over Tk722 crore, largely driven by a surge in income from government securities. Investment income more than doubled to Tk2,775 crore, accounting for around 77% of the bank’s total operating income.
Despite a sharp 87% decline in net interest income, City Bank maintained solid profitability due to its treasury performance. A capital market analyst remarked that “City’s treasury desk kept the income statement afloat,” highlighting how the bond market has kept banks solvent.
Eastern Bank Limited: A Conservative Shift
Even traditionally conservative banks like Eastern Bank Limited (EBL) have embraced the bond boom. EBL’s investment income doubled from Tk505 crore in 2020 to Tk1,017 crore in 2024. In the first nine months of 2025, its investment income rose by 39%, accounting for nearly half (48%) of the bank’s total operating income.
The shift from loan-based earnings to treasury returns is clear, with net interest income falling by 10%. As a result, government securities now make up 86% of EBL’s total investment portfolio, up from 79% in 2020.
MTB: The Paradox of Declining Margins
At Mutual Trust Bank (MTB), the trend is similarly stark. While its net interest income collapsed by 58%, investment income nearly doubled to Tk973 crore, now accounting for 60% of total operating income. Managing Director Syed Mahbubur Rahman acknowledged that income from core banking operations has dropped sharply, but the bank’s treasury operations have kept it profitable.
Prime Bank: Bonds Bolster Profit
Prime Bank’s earnings have also benefitted from the bond boom. In 2024, its investment income more than doubled to Tk1,027 crore, making up 22.5% of total operating income. The trend has continued into 2025, with investment income surging to over Tk1,221 crore, now accounting for nearly two-thirds of its operating income.
Bank Asia: A Complete Shift to Treasury Banking
Bank Asia has seen perhaps the most dramatic transformation. For the first half of 2025, the bank’s net interest income turned negative, yet its investment income from government securities nearly doubled to Tk1,248 crore. As a result, government securities now account for nearly 90% of Bank Asia’s operating income, compared to less than half in 2024.
Rising Yields and Shrinking Credit Demand
Government securities have become an attractive option for banks as yields on treasury bonds and bills have surged, peaking at 12-13% across various maturities in mid-2024. This rise is due to Bangladesh Bank’s tightening of policy rates and the broader liquidity squeeze in the banking system. However, by September 2025, yields began to ease slightly, signalling a tentative cooling of borrowing costs.
When Will Credit Demand Recover?
Many bank executives believe that loan demand will pick up once the general election is held and political stability is restored. Tareq Refat Ullah Khan of BRAC Bank stated that foreign investors are waiting for a stable government before committing capital to Bangladesh. He is hopeful that as stability returns, credit demand will recover by 2026, particularly in infrastructure and industrial projects.
Economist’s View: Innovation Needed
Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), said that banks have done nothing wrong by investing in government securities given the sharp decline in private sector credit demand. However, she questioned the banking sector’s lack of innovation and product diversification. Khatun also warned of the growing domestic debt burden, urging the need to mobilise more internal resources to prevent fiscal instability.