Centralised operations, diversified revenue models, and disciplined governance are vital for the recovery of Bangladesh鈥檚 banking sector, said Kimiwa Saddat, Managing Director (current charge) of Community Bank Bangladesh PLC.
In an interview with 抖阴精品 Business magazine, the country鈥檚 youngest Managing Director identified the decentralised operational structures still followed by most banks as a root cause of unchecked lending, mismanagement, and inefficiencies.
鈥楿nless banking operations are consolidated and streamlined, incidents of mismanagement and fraud will continue, undermining public confidence,鈥� he said, making the remarks at a time when the country鈥檚 banking sector is grappling with one of the worst crises in its history.
He noted that banks currently performing well tend to have more centralised control structures, which allow for more effective risk management.
Saddat identified non-performing loans (NPLs) as the most pressing issue facing the banking sector today.
He argued that the problem extends beyond lending discipline and reflects deeper structural inefficiencies.
While stronger banks are adopting centralised models that promote better governance and risk control, many institutions continue to operate in a fragmented manner, hindering systemic reform.
On the issue of supporting a large number of weak banks through capital injections, despite the economic strain on Bangladesh, Saddat acknowledged that the recovery process would require a long-term commitment, potentially spanning three to four decades.
While capital infusion is one option, he emphasised that it should not be seen as the only path forward. Alternatives such as involving depositors as equity stakeholders or implementing targeted restructuring measures must be explored as part of a comprehensive reform agenda.
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He expressed optimism that the sector would eventually overcome these challenges.
In his view, the market will self-correct over time, and banks currently underperforming will either adapt or be phased out, resulting in a more robust system overall.
Saddat pointed to the turnaround of previously struggling banks, such as Eastern Bank, which are now among the top performers. These success stories, he said, demonstrate that recovery is possible through sound management, transparency, and strategic reform.
He also believes that forensic audits can play a key role in identifying the extent of losses in weaker banks, thereby providing a factual basis for targeted interventions. Solutions could include fresh capital injections by the government, public-private partnerships, or other innovative financial models.
Commenting on the recent push for bank mergers, Saddat struck a cautious note. While acknowledging that mergers and acquisitions are a potential solution, he does not view them as the first or most effective course of action.
In previous instances where strong and weak banks were merged, mere announcements triggered depositor panic and led to falling share prices for listed banks, he noted.
The complexity of merging banks with wide structural differences makes it a risky and challenging process.
Without thorough planning and clear communication, such strategies can backfire, eroding public trust rather than restoring it.
Beyond the challenges posed by decentralised operations, another major obstacle, according to Saddat, is the outdated legal framework 鈥� particularly regarding mortgage foreclosure laws and the decision-making processes for handling defaulted loans.
The sale of mortgaged properties often takes between three and seven years due to legal entanglements.
As such, rules governing mortgage foreclosure must be clearly defined, timelines shortened, and responsibilities allocated through a well-structured decision tree.
Saddat emphasised the urgent need to modernise legal and regulatory frameworks. 鈥榃ithout legal reform, other structural adjustments will have limited impact,鈥� he said.
As long as wilful defaulters are able to exploit legal loopholes and obtain indefinite stay orders, banks will remain exposed.
Saddat stressed the need to enforce existing regulatory provisions designed to penalise such defaulters, warning that without enforcement, reform will remain an illusion.
He also highlighted the profitability strategies of foreign banks operating in Bangladesh.
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He cited Standard Chartered Bank鈥檚 recent financial disclosure, which reported profits of over Tk 3,500 crore despite its comparatively smaller loan and deposit base.
Saddat observed that foreign banks such as HSBC succeed by adopting diversified revenue models that do not rely heavily on interest income. Instead, they generate significant fee-based income, strong treasury operations, and non-funded earnings 鈥� particularly from trade finance activities such as letters of credit (LCs).
In contrast, many Bangladeshi banks remain heavily reliant on interest income from loans.
Saddat urged local banks to reconsider their business models by drawing lessons from international best practices.
The key difference, he explained, is that foreign banks enjoy greater credibility and trust in global credit markets. Their LCs are widely accepted, whereas Bangladeshi banks often face difficulties in finding foreign correspondents willing to confirm or process LCs due to concerns over credibility.
This disparity restricts the capacity of local banks to expand their non-funded income, putting them at a competitive disadvantage.
Saddat expressed cautious optimism regarding the government鈥檚 recently established taskforce on banking reform.
However, he believes that for the taskforce to be effective, it must focus on a few core priorities: regulatory modernisation, strategic centralisation, diversified revenue models, and disciplined governance.
Addressing the recent surge in depositor anxiety and fund withdrawals, Saddat underscored the importance of restoring public confidence.
He argued that regaining trust requires more than financial measures 鈥� it calls for transparency, consistent communication, and visible accountability.
Government agencies and banking leaders must work together to reassure the public that deposits are secure, that defaulters will be held to account, and that reforms are being implemented with genuine commitment and urgency, he said.
