For banks, of every Tk10 they earn, 6-8 now comes from bonds. But for how long?
Government securities have become the new lifeline of profitability, transforming balance sheets across the industry
Highlights:
- Bank profits rose despite weak lending, driven by treasury income surge
- BRAC Bank's investment income quadrupled; treasury now over half of earnings
- City Bank's profits up 60%, powered almost entirely by government bonds
- Treasury income replaced lending margins across EBL, MTB, Prime, and Bank Asia
- Domestic debt doubled in five years as bond yields hit decade highs
- Economists warn bond-driven profits are unsustainable without renewed credit demand
When Bangladesh's banking sector entered 2025, it faced a bleak outlook — rising deposit costs, persistent inflation, sluggish credit demand, shrinking margins, and political uncertainty that threatened to erode profits across the board.
Yet the outcome defied expectations. Profits not only held up but even rose at several private lenders — the so-called "good banks."
Their secret was not stronger lending or credit expansion, but a surge in treasury income. Government securities have become the new lifeline of profitability, transforming balance sheets across the industry.
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BRAC Bank: Treasury to the rescue
At BRAC Bank, the shift has been striking. Investment income jumped from around Tk700–800 crore during 2020–2022 to a record Tk2,880 crore in 2024 — a fourfold leap in just two years.
The bank's investment income grew 67% in 2023 and another 127% in 2024, far outpacing lending or fee-based growth.
In the first nine months of 2025, BRAC Bank's net profit rose 50% year-on-year to over Tk1,553 crore. Yet its net interest income — the spread between loan earnings and deposit costs — fell by nearly Tk100 crore or 7%.
What kept the bottom line afloat was the treasury. Investment income soared by Tk1,429 crore, or 73%, to Tk3,394 crore during January–September 2025, lifting total operating income by 22%. Treasury operations now contribute 55.3% of BRAC Bank's operating income, up from 42% a year earlier.
"We are receiving a lot of deposits because of our credibility, but lending opportunities have shrunk significantly," said Tareq Refat Ullah Khan, managing director of BRAC Bank. "If we hadn't invested our surplus liquidity in government securities, we would have had to cut deposit rates."
Still, he described the bond-driven earnings as "unsustainable."
"I've told my colleagues not to depend on this temporary source of income," he said. "They're trying their best, but what can they do when industrial activity is subdued and private sector credit growth has fallen to around 6%?"
City Bank's investment income exploded
At City Bank, the pattern is even starker. Its profit after tax jumped 60% year-on-year to over Tk722 crore in the January–September 2025 period, driven almost entirely by a surge in income from government securities.
Investment income more than doubled to Tk2,775 crore from Tk1,020 crore a year ago, accounting for around 77% of the bank's total operating income of Tk3,622 crore.
The shift came as high deposit costs and weak credit demand squeezed the bank's core lending margin – net interest income plunged nearly 87% to nearly Tk150 crore from Tk1,172 crore a year ago.
Despite higher provisioning of Tk885 crore and rising expenses, City Bank maintained solid profitability thanks to record returns from Treasury bonds and bills.
"This isn't growth from lending – it's survival through the bond market," noted a capital market analyst. "City's treasury desk kept the income statement afloat."
EBL: Profit built on bonds
Even the traditionally conservative Eastern Bank Limited (EBL) has not been immune to the bond boom. Between 2020 and 2024, its investment income doubled – from less than Tk505 crore to Tk1,017 crore – a 101% increase.
And, this trend continues so far this year. EBL's nine-month data for 2025 showed EBL's income from investments jumped 39% year-on-year to Tk1,095 crore, which is now 48% of the bank's total operating income, up from 39% last year.
Meanwhile, net interest income fell 10% to Tk712 crore, indicating that treasury returns have replaced loan spreads as the core profit engine. The contribution of EBL's net interest income to the bank's total operating income rose to 39% now from 31% a year ago.
Government securities now constitute 86% of EBL's total investment portfolio, up from 79% in 2020.
"In an economy facing slow credit growth, rising default risks, and volatile liquidity, banks have found refuge in risk-free assets," said a senior treasury official of EBL.
MTB: Core margins evaporate
At Mutual Trust Bank (MTB), the pattern borders on paradoxical.
While net interest income collapsed 58% year-on-year in the first nine months of 2025 — from nearly Tk629 crore to less than Tk263 crore – investment income nearly doubled to Tk973 crore.
Investment returns now represent 60% of total operating income, compared with 37% a year earlier. As a result, MTB's profit engine has effectively migrated from loan books to government securities.
Syed Mahbubur Rahman, managing director of MTB, acknowledged that the bank's income from its core banking operations has dropped sharply because of subdued demand.
"In fact, this is true for almost all banks – income from core banking has fallen as nonperforming loans have risen, deposit costs have surged, and balance sheets have stopped expanding," Rahman told The Business Standard.
How Prime Bank's profit surged
Prime Bank's earnings in 2024 were driven largely by a sharp rise in investment income, as higher returns from government securities offset the pressure from shrinking interest margins.
The bank's investment income more than doubled to Tk1,027 crore in 2024 from Tk513 crore a year earlier, accounting for 22.5% of total operating income, up from 15.7%. This surge came amid elevated yields on treasury bills and bonds, where many banks shifted funds to lock in safer and higher returns.
And this trend has become even stronger this year.
During the first nine months of 2025, Prime Bank's net interest income plunged to Tk375 crore from Tk739 crore in the same period a year earlier. Yet, its operating income rose to over Tk1,962 crore – an increase of nearly Tk185 crore.
The jump came largely from soaring investment income, mainly generated from government securities. That income nearly doubled to over Tk1,221 crore, up from around Tk693 crore a year ago. As a result, nearly two-thirds of Prime Bank's operating income now comes from investments rather than its core lending business.
Bank Asia: From lending to treasury banking
Perhaps the most dramatic shift came at Bank Asia.
For the first half of 2025, the bank's net interest income turned negative – a loss of Tk110 crore compared with a Tk353 crore gain a year ago.
But its investment income nearly doubled, reaching Tk1,248 crore from Tk646 crore last year.
That surge, entirely from government securities, singlehandedly prevented a profit collapse. Investment income now accounts for almost nine out of every Tk10 of Bank Asia's operating income, compared with less than half in 2024.
DBBL: Stronger, but heavily dependent
Dutch-Bangla Bank (DBBL) also leaned heavily on its treasury arm.
In 2024, the bank's investment income rose by Tk305 crore to Tk1,047 crore, driven by larger holdings of T-bills and bonds.
Net interest income grew too, up 31%, as DBBL managed to raise lending yields faster than deposit costs.
But the first half of 2025 shows a clear tilt: investment income jumped 127% year-on-year to Tk935 crore, even as net interest income slipped 13%. As a result, treasury operations contributed over one-third of total operating income, up from just 20% a year earlier.
"High return, no NPL, and risk-free," said Abul Kashem Md Shirin, managing director of DBBL, describing the bank's investment in government securities. "To take advantage of the high rates, some banks have bought bonds with 10 to 20-year maturities," he noted.
"But what else can banks do when there's hardly any new investment and businesses aren't expanding?" he added. "Otherwise, we would have had to cut deposit rates."
However, DBBL's case shows both sides of the coin.
Efficient treasury management kept earnings healthy, but the growing reliance on investment income reflects a systemic trend – profits detached from lending.
Domestic debt doubles in five years as yields hit decade-high
Bangladesh's domestic debt has more than doubled over the past five years as the government has increasingly turned to market-based borrowing through treasury bills and bonds to finance widening budget deficits.
Data from the Bangladesh Bank show the outstanding stock of government securities rose to Tk580,578 crore at the end of FY2023-24 from Tk290,290 crore in FY2019-20. The ratio of G-Sec (Government Securities) to GDP climbed to 11.5% from 10%, while outstanding NSD (liabilities of savings certificates and small-saver schemes) slowed to Tk341,151 crore, reflecting a shift from small-saver instruments to market debt.
Treasury bonds remain the backbone of domestic borrowing, rising 88% in five years to Tk407,832 crore, while treasury bills more than doubled to Tk133,446 crore as the government relied on short-term instruments to manage liquidity stress. The entry of Sukuk bonds, introduced in FY2020-21, added Tk19,000 crore to the portfolio.
The shift has come at a cost. After plunging below 1% during the pandemic, yields on government papers have surged to 12-13% across maturities by June 2024 – the steepest in a decade – as the Bangladesh Bank tightened policy rates and liquidity dried up in the banking system. The central bank's repo operations and liquidity support ballooned to Tk3.03 trillion, up sixfold in five years.
At the same time, public external debt nearly doubled to Tk981,926 crore, or 19.5% of GDP, reflecting growing reliance on foreign financing.
However, after months of relentless rise, yields on government treasury bills and bonds eased slightly in September, signalling a tentative cooling of borrowing costs amid improved liquidity in the banking system.
BB auction data show that cut-off yields on T-bills, which had shot above 10% in August, fell gradually through September. The 91-day bill dropped from 10.08% at the start of the month to 9.91% by the last auction on 29 September. Similar declines were observed in the 182-day and 364-day bills, slipping from around 10.13% to 9.79% and 9.68%, respectively.
Yields on long-term bonds also moderated. The 2-year bond, issued early in the month, was accepted at 10.17%, while the 5-year settled at 10.03% and the 10-20-year bonds ranged narrowly between 9.67%-9.90%. This marks the first time in several months that the entire yield curve has flattened below the 10% psychological threshold.
When loan demand may pick up
TBS posed this question to three managing directors and four treasury heads from different banks. Their common answer was: the general election.
Tareq Refat Ullah Khan, managing director of BRAC Bank, said many foreign and local investors are eager to invest but are waiting for an elected government. "Several foreign investors are looking to invest in Bangladesh to take advantage of the US tariff benefits," he said.
He added that fresh investments are expected in infrastructure and other development projects once political stability returns. A new FSRU is also planned, which will increase gas supply and stimulate industrial growth, particularly in rural areas. "I am hopeful that the current weak credit demand will start to recover by 2026," he said.
Syed Mahbubur Rahman, managing director and CEO of MTB, said once the election is held, business confidence will return and loan demand will pick up. "Investors are waiting – it all depends on how things unfold," he noted. The managing director and CEO of DBBL echoed a similar view.
What an economist says
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said banks had done nothing wrong by investing heavily in government securities, as private sector credit demand had sharply declined. At the same time, she questioned the banking industry's lack of innovation and product diversification.
The economist also cautioned about the growing domestic debt burden. "Unless we can mobilise more resources internally, the debt burden will continue to rise, putting pressure on fiscal stability," she said.
