A significant portion of the retail deposits, corporate capital, and retirement savings placed within the national banking industry no longer resides inside commercial vaults.
Decades of irregular lending, regulatory oversight lapses, and insider fraud have allowed politically connected borrowers to strip billions from the financial system, with substantial volumes allegedly laundered abroad.
Consequently, depositors face structural withdrawal delays as distressed commercial banks grapple with profound asset-liability mismatches.
To prevent a systemic collapse, Bangladesh Bank has repeatedly stepped in as the lender of last resort. By utilizing repo facilities, emergency liquidity lines, and high-powered money creation, the central bank has effectively used its currency mint to plug structural deficits.
The central bank's Financial Stability Report 2025 highlights the massive scale of these ongoing rescue operations.
While total system-wide liquidity injections amounted to Tk30.29 trillion in FY24, they remained highly elevated at Tk21.68 trillion through 2025. Furthermore, special emergency liquidity windows opened to aid deeply insolvent institutions have funneled approximately Tk76,000 crore directly into distressed balance sheets through June 2026.
This sustained level of intervention reflects long-term structural insolvency rather than a temporary cash crunch.
When depositors attempt to withdraw funds simultaneously, institutions lack the liquid cash to satisfy them because their asset bases are tied up in non-performing loans (NPLs).
The current liquidity stress stems from a decade of governance failures where the standard credit appraisal process was frequently bypassed.
Through board room capture and corporate cross-ownership, prominent conglomerate directors routinely acted simultaneously as bank owners, board members, and primary borrowers.
The operational collapse of several major Islamic banking windows highlights this risk.
Unchecked credit concentrations allowed entities like the S. Alam Group to draw massive loans from multiple controlled institutions, with substantial portions of those funds reportedly transferred into foreign real estate, offshore shell entities, and overseas investments.
With these funds effectively removed from domestic balance sheets, institutions have been forced to rely on central bank interventions.
Recent emergency cash injections include nearly Tk900 crore deployed to stabilize Islami Bank Bangladesh PLC, with similar emergency lifelines extended to First Security Islami Bank, Social Islami Bank, Union Bank, and Global Islami Bank.
The financial health of the banking industry has deteriorated significantly. According to central bank data, the industry-wide Capital to Risk-Weighted Assets Ratio (CRAR) plummeted to a negative 2.64% in 2025, leaving a large segment of the banking system without the necessary buffer to absorb credit shocks.
This capital erosion has been driven by sharp increases in bad loans, with non-performing assets within the Islamic banking sector growing by over 56% in a single year.
As commercial credit ratings fell, these distressed institutions became completely excluded from the interbank call money market, forcing them to rely entirely on central bank fiat money.
This reliance on currency creation presents distinct macroeconomic trade-offs:
- Injecting newly minted currency into the financial system expands the high-powered money supply. While economists note that these funds currently replace missing deposits rather than creating new demand, sustained printing risks placing upward pressure on consumer price indexes (CPI).
- Stepping in repeatedly to rescue mismanaged institutions risks embedding a culture of fiscal irresponsibility. Board members and executives may continue high-risk lending practices under the assumption that the central bank will always act as an ultimate safety net.
Required structural reforms
Monetary analysts emphasize that emergency liquidity support addresses only the symptoms of industrial distress rather than its root causes.
Restoring institutional stability and depositor confidence will require a comprehensive regulatory overhaul.
- Aggressive Asset Recovery: Establishing specialized legal frameworks to seize domestic collateral from chronic defaulters and deploying international asset-tracing mechanisms to recover capital transferred abroad.
- Bank Resolution and Mergers: Moving away from continuous bailouts toward structural resolutions, including forced bank mergers, receiverships, or orderly liquidations of non-viable entities.
- De-Politicizing Board Rooms: Restricting board memberships for single family conglomerates and enforcing strict fit-and-proper criteria to ensure professional management.
- Central Bank Autonomy: Granting the central bank full independence from external political influence to enforce prompt corrective actions against non-compliant institutions.
- Depositor Protection Mechanisms: Upgrading deposit insurance schemes to protect retail savers and restore public confidence in the banking system.
