Immediately after independence, although a nascent nation, state-owned commercial banks played a towering role in expanding industry and trade.
Over time, however, due to directed lending, pressure from vested groups connected to those in power, and the lack of modern services and proper use of technology, these banks have gradually turned into outdated institutions -- almost reminiscent of a bygone era. It often feels like throwing public money into the drain.
Most state-owned banks have, for years, become a symbol of massive losses, corruption, low capital, and inefficiency. Under the pretext of government ownership alone, the process of recapitalizing them with public funds has continued unabated.
Recently, even in the large non-performing loan (NPL) restructuring scrutiny committee led by Bangladesh Bank, I have seen state-owned banks to be among the most frequent participants.
We have witnessed some of the worst examples of loan misappropriation in these institutions. There is little doubt that large sums of money have exchanged hands under the table.
In return, the government has had to bear enormous losses year after year, effectively wasting resources meant for public benefit.
As most of us know, over the past one and a half decades, irregularities, corruption, political control, and weak management have pushed state-owned banks into a very fragile condition.
They are burdened with massive defaulted loans, capital and provisioning shortfalls, liquidity crises, and managerial inefficiencies.
At the same time, with private banks now also engaged in government transactions and savings instrument sales, the role and responsibilities of state-owned banks have diminished significantly. With reduced workload, many officials in these banks are passing idle time.
Although the immediate past interim government took several steps to reform weak private banks, no visible measures have yet been taken to reform state-owned banks. These institutions continue to operate in outdated ways, posing risks to the financial sector.
There is an urgent need to revitalize their operations through reform. Without immediate restructuring, consolidation, and effective reforms, these banks may soon become a heavier burden on the economy rather than a source of support.
According to central bank data, by the end of June last year, the total defaulted loans of the four major state-owned banks alone stood at Tk146,361 crore -- amounting to 48.10% of their total disbursed loans.
Moreover, these banks are failing to maintain adequate provisioning against their bad loans. Except for Sonali Bank, the combined provisioning shortfall of the other three banks stands at Tk 68,036 crore.
In just six months, Janata Bank has incurred a net loss of Tk 2,072 crore. BASIC Bank’s losses are even deeper, with Tk 8,930 crore -- 69.20% of its total loans -- classified as defaulted. Meanwhile, 42.10% of the disbursed loans of Bangladesh Development Bank Limited (BDBL) have also turned non-performing.
With nearly half of their loan portfolios defaulting, these banks face serious threats to their capital base and financial stability. Their inability to maintain proper provisioning highlights significant weaknesses in risk management. The growing provisioning deficits and negative credit growth indicate that these banks are now struggling to survive rather than contributing to economic growth.
It is widely acknowledged that the primary drivers of this crisis are political interference and corruption. Over the past decade and beyond, many top-level appointments in these banks have been politically influenced, leading to unprecedented looting.
Reports suggest that large sums of loans were disbursed to oligarchic groups from institutions like Janata Bank -- loans that are now largely unrecoverable.
The declining operational activity of these banks is also evident in their lending data. According to central bank figures, the total outstanding loans of Sonali, Janata, Agrani, and Rupali banks stood at Tk 312,604 crore at the end of December 2024.
However, instead of increasing, their loan portfolios shrank by Tk 8,378 crore over the next six months, bringing the total down to Tk 304,226 crore by June last year.
This trend is not limited to these four banks. Similar contraction is observed in BASIC Bank, Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), and Probashi Kallyan Bank.
Rather than expanding, their loan portfolios are shrinking -- indicating a clear contraction in operations. While part of this is due to central bank directives considering large NPLs, it also reflects deeper structural weaknesses.
Following the 2024 political upheaval, Bangladesh Bank initiated several visible reforms in private banks. Over 14 bank boards were dissolved and significant management changes were introduced. Five Shariah-based banks have been merged into a single entity, and forensic audits have been launched in 11 banks.
Yet, no such initiatives have been undertaken for state-owned banks. There is an urgent need for forensic audits to uncover irregularities and determine the true quality of assets -- something that remains absent.
To strengthen the banking sector, the number of state-owned banks must be reduced through consolidation. Administrative disorder must be addressed through merit-based recruitment and promotion.
The practice of supernumerary promotions in these banks must be discontinued. Those responsible for past corruption must be brought to justice to set an example and break the culture of impunity.
Lending decisions must be based on commercial viability rather than political considerations. Instead of relying heavily on government securities, these banks should channel credit into productive sectors and SMEs.
Bangladesh Krishi Bank has been incurring losses for years, with alarming capital shortages and NPL levels. A similar situation exists in RAKUB. The government has long discussed merging these two institutions, which would reduce administrative costs, unify loan management, and improve service delivery.
However, bureaucratic inertia and indecision have stalled progress -- despite both being government-owned with overlapping mandates.
Before focusing on merging private banks, the government could have initiated consolidation within state-owned banks, particularly between BKB and RAKUB. Such a move would have enhanced transparency in lending and financial management and better served the agricultural sector.
We need not look far for examples. In neighbouring countries such as India, Sri Lanka, and even Pakistan, state-owned banks have been made profitable through leadership changes, board restructuring, improved service quality, and enhanced competitiveness.
State-owned banks are valuable national assets. But if they continue to be eroded by corruption, inefficiency, and political interference, they will pose significant risks to the broader economy.
Without a stable banking sector, it is impossible to boost investment, create jobs, or sustain economic growth. Therefore, immediate reform is imperative.
Mamun Rashid is an economic analyst and Chairman at Financial Excellence Limited.