No government can escape responsibility for the looting of the banking sector. However, the previous Awami League government stands in a class of its own. The looting took place with every form of state patronage, while Bangladesh Bank failed spectacularly in its role as regulator. The central bank approved all kinds of wrongdoing to accommodate the demands of the government of the day.
As a result, the volume of non-performing loans (NPLs) in the country now exceeds Tk 6 trillion, accounting for 32.78 per cent of total loans. As much as 72 per cent of these bad loans are concentrated in just 10 banks.
Taken together, Bangladesh now has the highest rate of loan defaults in the world. Bangladesh Bank must bear responsibility for this.
Yet the governor of that very central bank is now saying that public money was embezzled and that the public must pay to cover the losses. In the words of Governor Mostaqur Rahman, the public will have to pay a penalty. He has even provided an estimate of the amount, and it is substantial. Speaking at an event last Saturday, he said Tk 600 billion would have to be spent every year to recover from the collapse of the banking sector. This would have to continue for the next five to eight years.
Over five years, the total cost would amount to Tk 3 trillion; over eight years, it would reach Tk 4.8 trillion. Compared with the budget for the 2026–27 fiscal year, the annual outlay would be equivalent to around 6.5 per cent of the budget.
The Bangladesh Bank governor has also offered comparisons to illustrate the scale of the expenditure. For instance, Tk 600 billion a year could be used to support 20 million families through family cards, or it could pay for the construction of two Padma Bridges.
Why should we pay the penalty?
According to the latest estimates from the Bangladesh Bureau of Statistics (BBS), the penalty would amount to approximately Tk 3,432 per person, based on the country’s population.
The question is whether this money could be borrowed from a development partner instead of being taken from taxpayers. The answer is no. No development partner is likely to lend money to cover losses caused by looting in the banking sector.
We know that the World Bank has an ongoing lending programme for Bangladesh’s financial sector. The $450 million programme covers deposit protection, strengthening Bangladesh Bank’s supervisory capacity and preparations for bank restructuring. In other words, the World Bank is not providing money to cover the losses themselves. The only source left, therefore, is taxpayers’ money.
It is to be remembered that development partners never lend without conditions. The money Bangladesh is receiving from the World Bank also comes with numerous conditions. If lenders impose conditions when providing loans, why should the public have to hand over their tax money in the name of a penalty without any conditions in return?
The questions, then, are simple: why should we pay this penalty, and what will we get in return?
How much political will does the government have?
The biggest question is how much political will the government actually has to put the banking sector in order. There are certainly reasons to be sceptical.
On 9 May 2025, the interim government promulgated the Bank Resolution Ordinance. It did not allow former bank owners to regain ownership. But the law subsequently passed by the BNP government in parliament included a new provision that opened the door for former owners to take control again.
Critics argued that the provision had been inserted specifically to facilitate the return of a controversial businessman. Following strong criticism, the provision was eventually scrapped. Development partners had also raised objections.
One of the most widely discussed problems under the previous government was the entrenchment of family control over private banks. The previous administration had enabled this to facilitate looting. The public expects family dominance in the banking sector not to return.
To that end, Bangladesh Bank proposed reducing the maximum number of directors from a single family from three to two, and cutting the maximum consecutive tenure of a director from 12 years to six. It has now emerged, however, that the Financial Institutions Division (FID) of the Ministry of Finance has rejected both proposals. Instead, it has proposed reducing the maximum consecutive tenure from 12 years to nine while retaining the existing rule allowing up to three directors from the same family.
Past experience has shown that governments have retained the Financial Institutions Division ostensibly to oversee the banking sector but in practice to impose political decisions on economic policymaking. The same pattern appears to be continuing.
Yet the BNP pledged in its election manifesto to establish a commission to reform the financial sector and abolish the Financial Institutions Division under the Ministry of Finance. Implementing these two pledges after coming to power would be a major test of the government’s political will.
Here, I would like to refer to a report prepared by the International Monetary Fund (IMF) in 2019. The report, titled Financial Sector Stability Review, was never published because the Awami League government at the time was unhappy with its findings.
The IMF wrote: “There is a deep-rooted and persistent tendency among a section of society not to repay loans. Some influential and wealthy businesspeople have realised that the country lacks effective mechanisms to compel them to repay their loans.
Decision-making in Bangladesh’s financial sector has come under the control of influential borrowers. The situation is such that the default of just three large borrowers could cause a bank to fail.”
If that system is allowed to return, the public’s payment of the penalty will have been entirely in vain.
What mechanisms are in place to recover the money?
According to government figures, courts have ordered the seizure, attachment or freezing of assets worth approximately Tk 769.84 billion, both at home and abroad, as part of efforts to recover assets siphoned out of the country.
Of this amount, assets worth Tk 573.2593 billion are located in Bangladesh, while those held abroad are valued at Tk 196.58 billion.
We know that recovering assets held abroad is not easy. Various legal procedures must be completed. But most of the assets in question are located within the country. Recovering even these assets could provide some relief to the banking sector.
Simply announcing the formation of a task force will not reassure members of the public who are being asked to pay the penalty. They will want to see tangible progress.
Recovering losses alone will not strengthen banks
Bangladesh has so far merged five banks to form a new bank. Only time will tell whether this initiative succeeds. But mergers alone will not solve all the problems.
Malaysia, South Korea and several other countries offer examples of how to repair a weakened banking sector. The 1997 Asian financial crisis brought the banking sectors of several East Asian countries to the brink of collapse. Their recovery offers important lessons for Bangladesh.
Following the Asian financial crisis, Malaysia established Danaharta to acquire and manage non-performing loans, Danamodal to inject capital into banks, and the Corporate Debt Restructuring Committee to restructure the debts of large corporate borrowers.
At the same time, it consolidated its banking sector, reducing 51 banking institutions to 10 banking groups. In other words, it did not simply remove bad loans; it also changed banks’ capital structures and institutional framework.
During the crisis, South Korea closed several inefficient banks. The Korea Asset Management Corporation was tasked with acquiring non-performing loans. To maintain depositors’ confidence, the government temporarily guaranteed deposits held with financial institutions.
Earlier, during its banking crisis in the 1990s, Sweden established a dedicated bank support authority. It assessed the financial condition of distressed banks, injected capital into those that could be saved and took control of those that could not. Separate asset management companies, Securum and Retriva, were also established to handle impaired assets. The government published information on the condition of the banking sector and the assistance provided, making accountability an integral part of the programme.
The public has conditions too
When governments borrow from development partners, they must meet conditions attached to the loans and report on progress. The same requirements should apply when taxpayers’ money is used to rescue banks.
The government must clearly explain what reforms will be undertaken in return for this money, what results are expected, who will be held responsible if the reforms fail, and what punishment has been imposed on those responsible for the previous crisis.
The banking sector needs money to recover. But the public must also be shown how much the sector will change in return for that money.