The banking sector鈥檚 deep-rooted challenges, systemic corruption and years of unchecked scams driven by political exploitation were exposed after the August 5 political change and the revelations prompted the Bangladesh Bank to address the issues and start reforming the sector for stability, but the reform initiative is yet to gain pace.
Experts said that although corruption and irregularities in the banking sector had stopped to a large extent under the new leadership of the central bank after the ousting of Awami League regime on August 5, the sector was still far from a rebound due to slow progress in reforms, business activities and poor law enforcement.
Under the Awami League regime, banks became hostages to political interests, with corruption escalating hugely after the 2018 national election.
State-backed schemes had enabled embezzlement on an unprecedented scale, with central bank funds funnelled to entities like S Alam Group, mostly laundered abroad.
Such misuses of power had eroded the depositors鈥� trust in the financial system and destabilised it.
Bangladesh now leads South Asia in non-performing loans, with nearly 17 per cent of all loans defaulted 鈥� far surpassing its regional peers, including Sri Lanka.
The amount of defaulted loans skyrocketed to Tk聽2.85 lakh crore in September, increasing by Tk聽73,586 crore in just three months, underscoring a decade of mismanagement, regulatory failure and entrenched corruption during the AL regime which was ousted amid a student-led mass uprising.
Zahid Hussain, former lead economist at the World Bank鈥檚 Dhaka office, told 抖阴精品 that 2024 had been a grim year for the banking sector, with the defaulted loans surging.
He observed that the state-owned banks and most of the Shariah-based banks were under severe distress, facing acute liquidity shortages and relying heavily on the Bangladesh Bank鈥檚 liquidity support to stay afloat.
Following the political shift, the central bank restructured the boards of 11 private banks to halt any further deterioration of their situation and introduced a liquidity support scheme to stabilise the entities.
However, as the support proved insufficient, the Bangladesh Bank resorted to printing money to assist these banks to sustain and maintain the depositor confidence in the country鈥檚 banking sector.
Zahid added that the central bank had taken some steps, including forming a taskforce, initiating international audits of scam-hit banks to assess their asset quality and planning their fate based on the assessment, to reform the sector.
The interim government that took office after the AL鈥檚 fall is drafting the Banking Resolution Act and the Depository Insurance Act to address shortcomings in the current Bank Company Act, enabling merger or liquidation of the failing banks.
Zahid pointed out that the central bank had hiked policy rates and adopted a managed floating exchange rate to check soaring inflation, but stressed the need for the government鈥檚 interventions to dismantle market syndicates mainly responsible for price hikes.
He emphasised that meaningful results from these reform efforts would take time, as systemic changes could not occur overnight.
Experts said that the rise in bad loans had crippled the banks鈥� lending capacity, stifling economic growth and fostering mistrust.
They highlighted systemic abuses, including the use of fictitious accounts, manipulated data and frequent rescheduling of loans to cover defaulters during the AL regime, as critical factors in this unprecedented crisis.
Large borrowers, including S Alam Group, Beximco Group, Bashundhara Group and Orion Group, became defaulted recently.
At the end of the past financial year (FY 2023-24), the amount of distressed assets in Bangladesh鈥檚 banking sector surpassed Tk 6.75 lakh crore, an amount equivalent to the cost of 13.5 Dhaka Metro systems or 22.5 Padma bridges, according to a draft white paper on economy submitted to the chief adviser Muhammad Yunus on December 1.
The report mentioned persistent loan defaulting and high-profile scams as key factors eroding financial stability and diverting capital from productive sectors.
A fragmented regulatory framework enabled massive embezzlement through fake companies and undocumented loans, often benefiting politically connected entities and large borrowers.
Bank directors often arranged reciprocal loans, exploiting weak restrictions and using rescheduling practices to secure new loans despite poor credit histories.
Proliferation of banking licences, often granted to oligarchs tied to the ruling party, increased corruption, while under-qualified board members hindered governance, deepening the crisis.
Politically aligned or under-qualified individuals in boardrooms compounded governance failures, leaving the sector in disarray, the report said.
The Bangladesh Bank restructured the boards of 11 banks to rescue them, yet nearly all employees and managing directors involved in irregularities and corruption remained in their positions without facing any punishment.
The Bangladesh Bank has formed a task force to reform the banking sector and recover laundered money from abroad, but its full-fledged activities are yet to commence.
The Bangladesh Financial Intelligence Unit has frozen bank accounts of nearly 500 individuals involving Tk聽14,500 crore in assets and is investigating their asset accumulation processes.
The central bank injected approximately Tk聽28,000 crore into crisis-hit banks by printing money to stabilise the entities and ensure depositors could withdraw funds, although in a limited manner.
However, the foreign exchange market remains volatile, with the dollar surging to maximum Tk 129 due to lax oversight and flawed policies, which bankers warned could have a devastating impact on the economy.
At the end of December 2024, the dollar rate cooled down to nearly Tk 123.
Inflation also remained stubbornly high in 2024, reaching 11.38 per cent in November, far from its target.
Bangladesh Bank executive director Husne Ara Shikha told 抖阴精品 that corruption and scams had stopped now and reforms were underway.
She hoped that inflation would come under control within a year as the central bank increased policy rates lately and it required some time to have the impact of the rate hikes.
She also said that the dollar crisis and reserve crisis were expected to ease in the coming days as significant amount of foreign loans would be added to the reserve.
Agrani Bank chairman Syed Abu Naser Bukhtear Ahmed told 抖阴精品 that prolonged discontent in the banking sector over the past few years had eased and it was now moving towards stability following the recent political shift.
He emphasised that reforms could not be implemented overnight but expressed optimism, stating, 鈥楢fter a year, we will make significant progress, and once the political government is in place, the implementation of these corrective policies will accelerate.鈥�
He observed that the situation had already improved and was expected to continue improving in the coming days.
Abu Naser criticised unnecessary statements from regulatory bodies, which, he said, had caused disturbances in the banking sector.
鈥楩ortunately, such statements have now ceased, contributing to a more stable environment,鈥� he added.
鈥榃hile the central bank provides liquidity support to banks, it has extended no such support to ailing non-bank financial institutions. I believe the government and the central bank should pay attention to the NBFI sector as well,鈥� Abu Naser said.
He called for stricter measures to combat corruption and urged for exemplary punishment for those who were involved in irregularities to restore trust and ensure the sector鈥檚 stability.
