11 troubled banks to face asset quality test by int’l firms from January
Bangladesh Bank invites expressions of interest
Highlights:
- Bangladesh Bank to review 11 troubled banks through AQRs from January 2027.
- Reviews will assess asset quality, capital, liquidity, and lending risks.
- Earlier AQRs led to the merger of five banks into Sammilito Islami Bank.
- Banking sector has Tk5.89 lakh crore in bad loans, with 23 banks facing capital shortfalls.
Eleven troubled banks are set to undergo Asset Quality Reviews (AQRs) by international audit firms from January 2027 as the Bangladesh Bank expands its efforts to assess the financial health of lenders plagued by high non-performing loans and capital shortfalls.
The central bank on Monday invited expressions of interest from qualified international consulting and audit firms to conduct the reviews, according to a notice published in national newspapers.
Bangladesh Bank Executive Director Arief Hossain Khan said the central bank intended to gradually expand the AQR programme.
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"We have already completed Asset Quality Reviews of six banks. From January next year, several more banks will come under the process. We will first assess the financial health of each bank and then determine what measures are required in each case," he told TBS.
Broad review of assets and risks
According to the notice, interested firms must submit their expressions of interest by 3pm (BST) on 31 August 2026. The selected firm is expected to begin work in January 2027 and complete the assignment within 120 calendar days of signing the contract.
The appointed firm will conduct a comprehensive assessment of the selected banks' asset quality and risk management practices. The review will cover at least 80% of each bank's total assets and examine compliance with the Bangladesh Bank regulations on provisioning, large exposures and related-party identification.
Auditors will also verify the accuracy of information submitted by the banks and independently assess collateral valuations where necessary.
The scope of the assignment includes identifying wilful defaulters and connected lending, assessing regulatory capital and Tier 1 capital adequacy under domestic and international standards, conducting stress tests based on baseline and adverse macroeconomic scenarios for the next three years, analysing liquidity indicators including the Liquidity Coverage Ratio and Net Stable Funding Ratio, and carrying out forensic examinations to detect fraud or unlawful lending activities.
The selected firm will also be required to submit an inception report, monthly progress reports, and a final diagnostic report signed by a senior partner based overseas.
Eligibility criteria
The Bangladesh Bank said applicant firms must have at least 15 years of professional experience, including a minimum of 10 years in AQR, banking supervision or credit risk review. Their multidisciplinary teams must include chartered accountants, Financial Risk Managers, Certified Anti-Money Laundering Specialists or Basel III specialists.
The World Bank-financed Financial Sector Support Project-II is funding the initiative, which aims to strengthen the financial resilience of the banking sector and improve risk management.
Previous reviews triggered restructuring
The Bangladesh Bank previously appointed Ernst & Young and KPMG to conduct AQRs of six banks.
Ernst & Young reviewed Exim Bank, Social Islami Bank, and ICB Islami Bank, while KPMG assessed First Security Islami Bank, Global Islami Bank and Union Bank.
Following those reviews, five of the banks were merged to form the Sammilito Islami Bank, while ICB Islami Bank continues to operate under an administrator appointed by the central bank.
According to the reports prepared by the international audit firms, the six banks had widespread loan irregularities, with non-performing loan ratios ranging from 50% to 95%.
Among the five merged banks, four had been controlled by the S Alam Group, while Exim Bank had been controlled by Nazrul Islam Mazumder, chairman of Nassa Group.
Banking sector remains under strain
Bangladesh's banking sector currently has non-performing loans of Tk5.89 lakh crore, equivalent to 32.26% of total outstanding loans of Tk18.25 lakh crore.
Of the country's 61 banks, 17 have non-performing loan ratios of more than 50%, while 23 banks face a combined capital shortfall of Tk2.82 lakh crore.
Under the government's restructuring plan, the Sammilito Islami Bank will have paid-up capital of Tk35,000 crore. Of this, Tk20,000 crore has been provided by the government through recapitalisation, while the remaining Tk15,000 crore will come through a share or equity structure involving depositors.
The Bangladesh Bank has also established an Insurance Trust Fund (ITF) of around Tk12,000 crore to provide liquidity support during the restructuring and merger process. It has already disbursed Tk3,792 crore from the fund, with further support to be provided as required.
The central bank has appointed the chairman and managing director of the Sammilito Islami Bank. The administrator of Exim Bank has already been withdrawn, while administrators at the remaining banks will be removed in phases to help restore depositor confidence and strengthen the stability of the banking sector
