Friday, June 21, 2024


Dhaka Tribune

Shrinking transparency, rising losses: Is Bangladesh's banking sector at risk?

CPD said that people were now withdrawing money from banks as massive irregularities in the banking sector continued to erode their trust

Update : 23 May 2024, 07:43 PM

The Centre for Policy Dialogue (CPD) paints a concerning picture of Bangladesh's banking sector, highlighting a lack of transparency, declining depositor returns, and potential underestimation of non-performing loans (NPLs).

CPD on Thursday said that people were now withdrawing money from banks as massive irregularities in the banking sector continued to erode their trust.

Their findings, presented at a recent discussion titled "What Lies Ahead for the Banking Sector in Bangladesh?" raise questions about the sector's stability and the need for urgent reforms.

Fahmida Khatun, executive director of the CPD, in her keynote presentation said: “There are two layers of problems with banking sector data and information. First, most banks do not publicly display their performance data on their websites. Suppose you don't get information about Basel III in most banks. And those who don't show it, you must know that they don't comply with it.”

“Second, the information they are giving is really the actual health of the banks? How bad is it? That means the reliability of data and information.”

“Can people know about the information that is coming from Bangladesh Bank? The door to information in the banking sector is gradually closing. The free flow of information that we used to depend on the media for so long has also stopped. But all the information should be in our hands. If that is available, maybe journalists don't have to roam around. Their life can also be easier. Then they may go to obtain comments,” she explained.

Regarding availability of information in the global banking sector, she said: “Real-time and detailed data and up-to-date information in developed countries can be found on websites. Lack of reliable information compromises policy-making. A wrong policy will be followed by another wrong policy,” she added.

Negative returns for depositors

Adding to the concerns, CPD demonstrates that since March 2020, depositors have effectively lost money by keeping it in banks. 

This is because inflation has outpaced deposit interest rates, resulting in negative real returns. 

Their report shows the real interest rate on deposits falling from 0.1% in February 2020 to a low of -5.5% in August 2022 and May 2023. 

While it has slightly improved, it remains negative at -4.7% as of February 2024.  This trend discourages saving and threatens to weaken the banking sector's resource base.

Former governor of Bangladesh Bank Salehuddin Ahmed said that the authorities must take strict action. “Bangladesh Bank now makes one rule in the morning and changes it again in the afternoon after listening to someone else.

“Bangladesh Bank is given autonomy by law. It must be enforced,” he said.

Mustafizur Rahman, distinguished fellow at CPD, believes that politicians should also come forward to solve the problems in the banking sector .

He said: “The banking sector runs on trust. Necessary steps must be made to maintain this trust”

Net losses

Calculating the interest rate with the inflation, the CPD stated that since March 2020, depositors made losses by depositing money in banks.

That is, depositors are facing losses by keeping money in the bank for almost four years. The last profit made on bank deposits was in February of that year.

The real interest rate on deposits was zero in the following month, March.

CPD's report also stated that in February 2020, the actual interest rate on bank deposits was 0.1%. Real interest rates remain negative until February 2024 after falling to 0% in March.

In August 2022 and May 2023, it fell to a maximum of negative 5.5%. Since then it has always fluctuated with the rate of inflation. Last February 2024 it was negative 4.7%.

However, the real deposit rate, calculated as the weighted average of the monthly deposit rate of all scheduled banks adjusted with the point-to-point monthly consumer price index (CPI) inflation.


About rising non-performing loans (NPL),  CPD said that the total volume of NPLs has more than tripled in the last 10 years from Tk42,725 crore in the fourth quarter of FY12 to Tk145,633 crore in Q2 of FY24.

However, the actual amount of NPLs will be much higher if loans in specially mentioned accounts, with court injunctions, and rescheduled loans are included.

Fahmida Khatun further said: “From June 2012 to December 2023, bad loans in Bangladesh increased from Tk42,715 to Tk145,633 crore. If bad loans including rescheduled loans are added to this, the amount is Tk377,922 crore. On the other hand, against 72,543 cases in the Artha Rin Adalat, if we add the unpaid debt of Tk178,287 crore, the total amount of NPL stands at Tk556,209 crore.”

CPD also said that the financial oligarchy under crony capitalism in the country is using banks as vehicles to fulfill their goals.


  • Upholding the autonomy of Bangladesh Bank as outlined in the Bangladesh Bank Amendment Bill 2003.
  • Strengthening the independence of the central bank to ensure effective oversight of the financial sector.
  • Ensuring timely access to reliable data on bank performance.
  • Implementing measures to improve the health of commercial banks.
  • Establishing a more efficient judicial system to expedite loan recovery processes.
  • Creating an independent Banking Commission to strengthen regulatory capacity.
  • Developing a comprehensive framework to reduce NPLs and minimize future loan defaults.

The future stability of Bangladesh's banking sector hinges on addressing these critical issues.  By prioritizing transparency, protecting depositors, and tackling bad loans, policymakers can restore public trust and ensure a healthy financial system that supports economic growth.

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