Amidst severe financial turmoil caused by widespread corruption, six out of the eleven struggling banks in Bangladesh have successfully stabilised. This turnaround has been driven primarily by robust deposit mobilisation over the past six months, restoring depositor confidence. However, the recovery came at a significant cost, as the Bangladesh Bank injected Tk30,000 crore into the banking system through its liquidity support programme.
Bangladesh Bank Injects Tk30,000 Crore to Support Failing Institutions
Revival of Six Banks
Following the appointment of Governor Ahsan H Mansur in August last year, the boards of these eleven banks were restructured, which played a crucial role in their rehabilitation. The six banks that have recovered are:
- Islami Bank
- Social Islami Bank
- Exim Bank
- United Commercial Bank (UCB)
- IFIC Bank
- Al-Arafah Islami Bank
Most of these banks have now ceased to require central bank liquidity support, having managed their crises through regulatory intervention and timely policy measures.
Challenges Ahead
Despite these positive developments, concerns remain regarding a surge in default loans. Previously concealed non-performing assets are now being exposed, which may significantly affect profitability. The central bank is considering provision forbearance support to cushion the impact once the full extent of bad loans is assessed.
Governor Mansur has instructed banks to maintain transparency, even if the industry’s average default loan ratio rises to 30%.
Struggles of the Remaining Five Banks
While six banks have recovered, five continue to struggle, failing to prevent deposit withdrawals. The Bangladesh Bank has ceased special liquidity support via new money creation to curb inflation. However, these banks still seek liquidity assistance daily.
A senior executive at the central bank revealed that a previous liquidity guarantee scheme has proven ineffective, as some borrowing banks have defaulted on their repayments. In September last year, Tk25,000 crore was allocated under this scheme, but Tk7,000 crore remains outstanding. Consequently, other banks are reluctant to lend to these distressed institutions, a stance reinforced by the IMF’s recommendation to discontinue the scheme due to its potential destabilising effects.
The Bangladesh Bank sees limited hope for the five struggling banks, as their regular operations have nearly ceased. Lending activities are suspended, and they remain dependent on central bank funds to manage deposit withdrawals.
Bank Resolution Act: A Path Forward
To address non-viable institutions, the Bangladesh Bank is expediting the Bank Resolution Act, expected to be finalised by July this year. The draft of the Bank Resolution Ordinance, 2025, has already been submitted to the Ministry of Finance for approval.
This legislation will empower the central bank to take decisive action, including:
- Appointing a temporary administrator
- Raising capital through new or existing shareholders
- Transferring shares, assets, and liabilities
- Establishing a bridge bank for critical functions
- Selling off failing banks
Speaking at a recent event, Governor Mansur remarked, “Not all banks will survive.” He added that certain institutions, particularly those previously controlled by the S Alam Group, have little hope, as over 80% of their deposits were concentrated within a single business entity.
Key Figures
| Bank | New Deposits Mobilised (Tk Crore) |
|---|---|
| Islami Bank | 17,000 |
| IFIC Bank | 4,000 |
| United Commercial Bank | 2,400 |
Case Study: Islami Bank’s Recovery
Islami Bank, the largest private commercial bank in Bangladesh, has restored depositor confidence after being freed from S Alam Group’s control. The bank has successfully mobilised Tk17,000 crore in new deposits over the past six months.
Following the restructuring of its board, Islami Bank overcame severe withdrawal pressures from August to September last year. A strong inflow of remittances and proactive measures contributed to the bank’s stabilisation. The bank also received Tk5,000 crore in liquidity support under the Bangladesh Bank’s guarantee scheme, although it has not required further assistance in recent months.
Chairman Obayed Ullah Al Masud credited government intervention and regulatory measures for the bank’s turnaround. He also confirmed the appointment of audit firms to assess its financial health and legal proceedings against individuals responsible for past mismanagement.
IFIC Bank’s Turnaround
Previously controlled by former private sector adviser Salman F Rahman, IFIC Bank faced substantial deposit withdrawals, amounting to Tk6,000 crore following the political regime change in August. However, under the leadership of its new chairman, Md Mehmood Husain, the bank launched a confidence-building initiative, leading to the mobilisation of Tk4,000 crore in fresh deposits over the past four months.
United Commercial Bank (UCB) Gains Stability
UCB, formerly associated with ex-land minister Saifuzzaman Chowdhury, also witnessed a reversal in fortunes. After losing over Tk2,000 crore in deposits post-July, the bank successfully attracted Tk2,400 crore in net deposits over the last six months, with significant inflows occurring in February and March.
UCB Managing Director Mohammad Mamdudur Rashid attributed the success to a nationwide deposit mobilisation drive, which resulted in the collection of Tk409 crore in just four days. Since February, UCB has resumed lending on a limited scale, reflecting its improved liquidity position.
While six of the eleven troubled banks have successfully navigated their crises, the remaining five continue to face severe difficulties. The introduction of the Bank Resolution Act aims to provide a structured mechanism for addressing non-viable institutions, potentially through mergers or asset transfers.
The evolving banking landscape underscores the importance of regulatory oversight, transparent reporting, and effective crisis management to ensure the long-term stability of Bangladesh’s financial sector.