What lies behind Bangladesh Bank’s huge profit?

When the financial sector is beset by multiple crises, the Bangladesh Bank’s net profit of more than Tk 260 billion raises fresh questions. Does the central bank’s record profit reflect weaknesses in the financial sector, or is it a sign of economic strength? Shawkat Hossain writes about the central bank’s profit and the financial sector.

At a time when bad news is coming from all directions about the country’s financial sector, a surprising piece of information has emerged about Bangladesh Bank. The country’s central bank made a net profit of more than Tk 260 billion in the 2025–26 fiscal year.

Its profit increased by about 15 per cent from the previous fiscal year. Bangladesh Bank is not a commercial enterprise. So how did it make such a large profit? Is this evidence of a healthy economy?

How much did Bangladesh Bank’s profit increase?

In the 2025–26 fiscal year, Bangladesh Bank’s gross profit stood at Tk 350.16 billion. Its expenditure during the year was Tk 89.93 billion. As a result, its net profit stood at Tk 260.23 billion. In the previous fiscal year, its net profit was Tk 226.20 billion.

Of this profit, Bangladesh Bank transferred Tk 259.77 billion to the government treasury. In other words, the government received almost the entire net profit. At the same time, a decision has been taken to provide the central bank’s officers and employees with an incentive bonus equivalent to six months’ basic salary.

Why did profit increase this time?

According to preliminary information, three main factors contributed to the increase in Bangladesh Bank’s profit in the 2025–26 fiscal year.

First, several weak banks in the country became dependent on Bangladesh Bank’s liquidity support to return depositors’ money and keep their day-to-day transactions running.

The central bank provided these banks with large amounts of money through repo, the Standing Lending Facility and special liquidity support. The interest earned on this lending was one of Bangladesh Bank’s main sources of income.

Interestingly, although Bangladesh Bank’s income increased, part of it came from the weakness of the banking sector. If banks were stronger and better governed, they would not have needed such large amounts of emergency liquidity support.

Second, Bangladesh Bank pursued a contractionary monetary policy to control inflation. As policy interest rates remained high for most of the year, banks had to pay higher interest on money borrowed from the central bank.

As a result, Bangladesh Bank’s income from lending and liquidity support increased. The central bank also earned interest from loans to the government and investments in government Treasury bills and bonds. Because of shortfalls in revenue collection and foreign financing, the government had to borrow more from the banking system.

At the same time, interest rates on government securities were also high. In other words, the interest-rate policy pursued to combat high inflation also helped increase Bangladesh Bank’s profit.

Third, Bangladesh Bank invests a large portion of its foreign exchange reserves in deposits with the central and commercial banks of various countries, foreign government bonds and other safe short-term financial assets. As international interest rates remained higher than in previous years, these investments also generated good returns.

What are Bangladesh Bank’s responsibilities?

The Bangladesh Bank Order, 1972 sets out six principal functions of the central bank. These include formulating and implementing monetary policy; formulating and implementing policies for intervention in the foreign exchange market; advising the government on the interrelationship between monetary, fiscal and exchange-rate policies and the economic effects of these policies; holding and managing Bangladesh’s official foreign exchange reserves; establishing and regulating a safe and efficient payments system, including the issuance of banknotes; and regulating and supervising banking companies and financial institutions.

Why profit is not a measure of success

The central bank’s principal responsibilities are to control inflation and maintain financial stability. Its success therefore should not be judged by the size of its profit or loss. The real question is whether a policy is serving the national interest and achieving its intended objectives.

A central bank’s profit can increase even as an economy faces growing crises. When policy interest rates are raised to curb inflation, the central bank earns more interest from loans to commercial banks. It can also earn money by selling dollars to prevent a depreciation of the domestic currency.

Again, when banks facing liquidity shortages borrow more, the central bank’s interest income increases. In other words, higher profit is not always a sign of a healthy economy; it may reflect high inflation, pressure on the currency or weaknesses in the banking sector.

Conversely, the central bank’s profit may decline, or it may even incur losses, because of measures taken to maintain economic and financial stability—such as providing funds at low interest rates, intervening in the foreign exchange market or taking on risky assets from distressed banks. But if such measures protect price and financial stability, they cannot be considered failures simply because they result in losses.

Let us now look at the experience of the central banks of several other countries.

Foreign assets are India’s main source of income

The Reserve Bank of India (RBI), recorded total income of around 4.28 trillion Indian rupees in the 2025–26 fiscal year, up 26 per cent from the previous fiscal year. However, it transferred 2.86 trillion rupees to the central government.

A large portion of the RBI’s income came from foreign assets.

Returns on investments in foreign government securities, foreign exchange transactions and income from domestic government bonds all increased. Pressure on the rupee has also been rising.

To counter this pressure, the RBI sold dollars in the market. Some of those dollars had earlier been purchased at relatively lower rupee rates. Selling them later at higher rupee rates generated a profit.

India, however, did not transfer the entire amount of its income to the government. Around 1.09 trillion rupees was transferred to the contingency fund, or an emergency risk reserve. The value of a central bank’s assets can fall rapidly when foreign exchange rates, gold prices, interest rates or the market value of government bonds change. To manage these risks, the RBI strengthened its own financial capacity before transferring the surplus to the government.

Higher interest rates boost profit in Pakistan

The State Bank of Pakistan made a net profit of 1.99 trillion Pakistani rupees in the 2025–26 fiscal year. Of this, 1.932 trillion rupees was given to the federal government. In other words, the government received around 97 per cent of the net profit.

However, the profit of Pakistan’s central bank declined by around 20 per cent from the previous fiscal year. At one point, the policy interest rate had risen to 22 per cent as the country sought to control inflation and meet the conditions of its IMF programme. Commercial banks were major buyers of government Treasury bills and Pakistan Investment Bonds.

When they needed liquidity, they pledged these securities with the central bank and borrowed through Repurchase Agreement (repo) and open market operations. High interest rates and the large volume of liquidity provided caused the State Bank’s interest income to rise as well.

Later, as inflation declined, the policy rate was gradually reduced to 11.5 per cent. This caused the central bank’s interest income and profit to decline as well. Therefore, the decline in profit cannot be directly described as a failure; rather, the fall in inflation made it possible to reduce interest rates. However, the profit of Pakistan’s central bank was one of the government’s major sources of non-tax revenue.

In Sri Lanka, lower profit but greater capacity

Sri Lanka’s example is different from those of Bangladesh, India and Pakistan. In 2025, the Central Bank of Sri Lanka made a net profit of 193.1 billion Sri Lankan rupees. Its profit declined by 29.7 per cent from the previous year.

One of the main reasons for the decline was lower net income from foreign currency assets. At the same time, net income from domestic currency assets also declined. The economy and markets are gradually returning to normal. As a result, income from the unusually high interest rates, exchange-rate movements and revaluation gains seen during the crisis period has declined.

Despite the fall in profit, the Central Bank of Sri Lanka’s financial capacity did not weaken. Rather, its foreign exchange reserves and total assets increased, while its equity almost doubled.

At the same time, the outstanding amount of funds obtained through a swap arrangement with the Reserve Bank of India declined, reducing pressure to repay foreign currency liabilities. In other words, a decline in profit does not necessarily mean that a central bank’s financial position has deteriorated; its capital, reserves, assets and liabilities must also be taken into consideration.

Although Sri Lanka’s central bank made a substantial profit, the government received only around 22 per cent of the total profit. The rest was retained to offset previous losses, build reserves, manage market risks and strengthen the central bank’s capital.

Profits in four countries, but different meanings

In Bangladesh, profit increased mainly because of interest earned on funds provided to distressed banks and the government, as well as income from investments of reserve assets.

In India, income increased from foreign assets, dollar sales and government bonds. In Pakistan, high policy interest rates and liquidity provided to banks boosted profit; after interest rates were lowered, profit also declined. In Sri Lanka, profit fell, but reserves, capital and financial capacity increased.

In other words, high profit is not definitive evidence of economic strength, just as low profit is not definitive evidence of weakness.

There are also differences in how profits are distributed. Bangladesh and Pakistan transferred almost their entire net profits to their respective governments, whereas Sri Lanka transferred around 22 per cent. India retained a large amount in its risk reserve before transferring the surplus to the government.

In Bangladesh, however, it is necessary to maintain adequate reserves to absorb future losses against the large volume of lending provided to weak banks. Therefore, before transferring almost the entire profit to the government, the central bank’s capital and its capacity to absorb credit risks should have been assessed.

The government is already facing a substantial shortfall in revenue collection. Receiving almost the entire amount of Bangladesh Bank’s profit will therefore provide the government with some relief.

The real measure of success

It is not unusual for a central bank to make a profit. Maintaining financial strength is also essential to a central bank’s independence and effectiveness. But profit is not its ultimate objective.

Bangladesh Bank’s success should be judged by whether inflation has been reduced and stabilised; whether excessive volatility in the exchange rate has declined; whether the dependence of weak banks on the central bank has decreased; how secure depositors’ money is; whether non-performing loans and banking fraud have come under control; and whether foreign exchange reserves are sufficiently safe and usable.

So the real question is not simply how much profit Bangladesh Bank has made. What matters is where the profit has come from, what risks lie behind it, how much represents genuine income and how much is accounting profit, and how the money has been distributed among the government, risk reserves and the central bank’s own capital.

*Shawkat Hossain is Head of Online at Prothom Alo

*The views expressed are the author’s own

* This article appeared in Prothom Alo print and online and has been translated by Farjana Liakat for Prothom Alo English Online