Why are foreign banks moving away from Bangladesh?

At one time, the presence of international banks in Bangladesh’s banking sector was regarded as a symbol of professionalism, modern technology, superior customer service and good governance. Over the years, several generations of customers have developed relationships of trust and confidence with institutions such as Standard Chartered and HSBC.

It is therefore only natural that Standard Chartered Bank’s decision to sell its retail banking business in Bangladesh, following HSBC’s earlier announcement that it would wind down its retail banking operations, has raised questions: Are international banks losing confidence in the Bangladeshi market, or is the international banking business model itself undergoing a fundamental transformation?

To find answers to these questions, we need to examine global banking strategies, competition in the local market and the economics of operating costs.

First, one point needs to be made clear: withdrawing from retail banking does not necessarily mean leaving Bangladesh altogether. Retail banking includes services such as deposits from individual customers, credit cards, home loans, personal loans, payment services and wealth management.

Corporate banking, international trade finance, treasury operations and institutional banking, on the other hand, are separate business segments. In many cases, international banks are scaling back their retail banking operations while placing greater emphasis on these other areas of business.

One of the most important reasons behind this shift is the economics of banking operations. A multinational bank has to bear more than just the costs of running branches and providing customer services. It must also make substantial investments in global technology infrastructure, cybersecurity, anti-money laundering measures, international sanctions screening, risk management, capital preservation and group-level oversight.

A significant portion of these costs does not decline even when the number of customers falls. Consequently, unless a bank has a sufficiently large customer base, deposit portfolio, loan book and transaction volume in a particular country, its operating costs per customer tend to rise.

Profitability is not the only consideration in a bank’s business decisions; the return generated on invested capital is equally important. If a bank invests substantial amounts of money in operating retail banking in a particular country but earns relatively modest profits, it will naturally consider alternative opportunities if the same capital could generate higher returns in another market or in corporate banking. In other words, the efficient allocation of capital has now become one of the key considerations in the business strategies of international banks.

In Bangladesh, domestic banks have extensive branch networks, long-standing customer relationships and a deep understanding of the needs of local businesses and consumers. At the same time, the expansion of mobile financial services, internet banking and digital payments has transformed the way banking services are delivered to customers.

At one time, international banks enjoyed a significant competitive advantage in credit cards, technology, international transactions and customer service. Over time, however, domestic banks have also increased their investments in these areas. As a result, much of the competitive advantage once enjoyed by foreign banks has diminished. Nevertheless, the expansion of digital services does not necessarily mean that all domestic banks are now capable of providing services that meet international standards.

Such business restructuring is by no means confined to Bangladesh. Around the world, major banks are increasingly seeking to concentrate their capital in markets and business segments where they can generate relatively higher profits and better returns on investment. India offers an important example in this regard. In 2023, Citibank N.A. sold its consumer banking business in India to Axis Bank.

Standard Chartered has also sold its personal loan portfolio to Kotak Mahindra Bank and, in 2026, entered into an agreement to transfer a large portfolio of credit card customers to Federal Bank. However, the bank is also pursuing a strategy of maintaining relationships with high-net-worth customers.

There are similar precedents in Pakistan, where the local operations of RBS, Barclays and HSBC have been transferred to various domestic banks. These experiences demonstrate that when strong local banks develop the necessary capabilities, opportunities emerge for them to acquire businesses relinquished by international banks.

HSBC’s decision in Bangladesh should also be viewed as part of its broader global reassessment. The bank has decided to restructure its retail banking operations in several markets, including Australia, Indonesia and Sri Lanka. Therefore, global strategy, capital management and profitability considerations have played important roles in its decision to scale back operations in Bangladesh. At the same time, the country's own market conditions cannot be ignored.

Bangladesh’s banking sector is currently grappling with problems such as non-performing loans, capital shortfalls, weak corporate governance, irregularities and a crisis of depositor confidence. Politically influenced lending, loans to related parties and the failure to take effective action against major loan defaulters have further exposed the sector’s institutional weaknesses. According to data published by Bangladesh Bank, by the middle of 2026, nearly one-third of the country's total banking sector loans had become non-performing. The World Bank has also highlighted capital weaknesses in the country's banking system.

In such circumstances, the withdrawal of two prominent international banks from retail banking could create negative perceptions among investors and customers. However, it would be inaccurate to interpret these decisions as evidence of a complete loss of international confidence in Bangladesh's economy or banking sector. Withdrawing from retail banking and completely exiting a country are two different things.

If international banks continue their corporate banking, trade finance and institutional banking operations, their long-term business interest in Bangladesh cannot be dismissed. The real question, rather, is how Bangladesh can ensure a business and regulatory environment that sustains international banks' interest in investing in the country.

The transfer of foreign banks' retail banking businesses to domestic banks could also create new opportunities. An acquiring bank can gain access to deposits, credit card customers, skilled employees and an established customer base all at once. This reduces the time and investment required to develop a new market from scratch.

However, acquiring a large portfolio does not automatically guarantee success. Such transactions also involve significant challenges, including assessing loan quality, retaining customers, integrating technology systems, ensuring cybersecurity and protecting customers' personal information. Bangladesh Bank must therefore ensure proper valuation of the businesses, assess the financial capacity of acquiring institutions and safeguard the interests of both customers and employees.

The key challenge facing Bangladesh’s banking sector today is to restore institutional credibility. This requires appointing qualified and competent individuals to bank boards, ensuring transparency in lending, controlling related-party lending, taking effective measures to recover non-performing loans, and ensuring independent and rigorous oversight by the regulatory authorities. Domestic banks must not limit themselves to competing over branch expansion or customer acquisition. They must also ensure efficient capital allocation, sound risk management, technological capabilities and compliance with international standards.

The withdrawal of international banks from retail banking should therefore not be viewed from a single perspective. While it reflects a shift in global banking strategies, it also presents an opportunity for domestic banks in Bangladesh to demonstrate their capabilities. However, acquiring the customers or business portfolios of foreign banks is relatively easy. The real challenge lies in retaining those customers’ trust and ensuring that they continue to receive services that meet international standards.

* Mamun Rashid is the Lead Partner at Financial Excellence Limited

* The views expressed here are the author’s own

* This article appeared on Prothom Alo print and online and has been translated into English for Prothom Alo English Online