Several private banks in Bangladesh have sustained or even grown profits in a challenging financial environment, not through traditional lending, but by pivoting heavily towards income from government securities (G-Secs). For some lenders, as much as Tk6–8 out of every Tk10 earned now comes from bonds, marking a significant transformation in their profit model driven by high-yield, risk-free government debt.
Replacing Shrinking Core Margins
Net interest income (NII) — the difference between interest earned on loans and interest paid on deposits, a core indicator of bank profitability — has sharply declined across the sector. To offset this, many banks have turned to G-Secs, using rising investment income to compensate for falling NII.
At City Bank, NII fell nearly 87% in January–September 2025, dropping to around Tk150 crore from Tk1,172 crore a year earlier. Over the same period, investment income more than doubled to Tk2,775 crore, now representing roughly 77% of total operating income.
BRAC Bank reported a similar trend: NII declined by nearly Tk100 crore (7%) in the first nine months of 2025, while investment income increased by Tk1,429 crore (73%), boosting total operating income by 22%. Treasury operations now account for 55.3% of the bank’s revenue.
The shift was even more pronounced at Bank Asia, where NII turned negative (a loss of Tk110 crore) in the first half of 2025. Almost doubled investment income prevented a major profit collapse, with returns from investments now contributing nearly nine-tenths of the bank’s operating income.
Mutual Trust Bank (MTB) also experienced a sharp realignment — NII plunged 58%, but investment income almost doubled, now accounting for 60% of total operating income.
Capitalizing on High-Yield, Low-Risk Assets
The shift has been fueled by rising yields on government papers, which climbed to 12–13% across maturities by mid-2024 — the highest level in a decade. Banks have capitalized on these rates, viewing G-Secs as safe and profitable alternatives amid rising default risks in private lending.
These bonds offered “high return, no NPL, and risk-free” income — a stark contrast to volatile lending markets. Even traditionally conservative institutions such as Eastern Bank Limited (EBL) increased investment income by 39% in the first nine months of 2025, with government securities making up 86% of its investment portfolio.
Redirecting Surplus Liquidity
With weak industrial activity and slow private sector credit growth of around 6%, banks found few viable lending opportunities. Many managing directors noted that deposits continued to grow, leaving them with surplus liquidity.
By investing this excess in G-Secs, banks secured stable returns without lowering deposit rates. Some institutions locked into long-term government bonds of 10 to 20 years to ensure sustained high yields.
For Dutch-Bangla Bank Limited (DBBL), this approach proved particularly lucrative — investment income rose 127% year-on-year in the first half of 2025, with treasury operations contributing over one-third of total operating income.
This strategic shift underscores a broader transformation in the banking sector, where profit increasingly derives from risk-free government instruments rather than traditional lending.