Condition of banks set for merger worsened after 2017 takeovers: BB deputy governor
"The central bank governor wants to reduce the number of banks in the country. If we merge, one bank will remain but four banks will be reduced. We must build a strong bank,” she says
Bangladesh Bank Deputy Governor Nurun Nahar has said the financial condition of the five weak Islamic (Shariah-based) banks now being merged was not as poor before 2017, but the scenario changed after the banks were taken over.
"Those Islamic banks that are being merged did not have such poor finances before 2017. After the banks were taken over in 2017, their condition began to change. Money was laundered, and single-borrower exposure limits were illegally exceeded. Many policy supports were given. These happened under political direction," she said while speaking at a seminar titled "Bangladesh's Banking Crisis: Finding the Way Forward" hosted by UNB today (18 October).
Had funds not been laundered out of the banks, their condition would be much better, the deputy governor said.
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Nurun Nahar added that the central bank governor wants to reduce the number of banks in the country. "If we merge, one bank will remain, but four banks will be reduced. We must build a strong bank."
She criticised the previous logic of creating banks for specific groups. "Earlier, it was like: 'So-and-so got a bank, we must have one too. The police should have a bank, the army should have a bank.' That kind of thinking may not have been necessary. People abroad are surprised when they hear how many banks we have.
"If needed, branch networks can be expanded — but why so many separate banks? At one time, three NRB banks were created. Now we must focus on how to overcome what has already happened."
She stressed the human cost of the pillage occurred in the banking sector. "If depositors' funds are looted or laundered, that is truly distressing. Why should depositors bear the cost? Those involved must face legal action. This implicates not only the central bank but also the commercial banks' managements and boards of directors."
Nurun Nahar said there was a time when NPLs (non-performing loans) were hidden "under the carpet" and real figures were not revealed. "Many banks do not have the capacity to pay dividends. Yet after 5 August, despite high NPLs, some of these banks have still paid dividends."
She added that the central bank could not do many things because of political constraints. "If someone refused to follow political instructions and left their job, the person who replaced them could do the same."
Nehal Ahmed, professor at the Bangladesh Institute of Bank Management, and MGK Jewel, consultant at the Risk Analyst Unit (Private Sector) of the Asian Development Bank, jointly presented the keynote paper.
After the presentation, Professor Nehal Ahmed said, "In March 2025, the volume of non-performing loans (NPLs) reached 24%, up from 12% in June of the previous year. So, what happened within nine months that caused such a sharp increase? It means the actual amount of NPLs had been concealed. If it hadn't been hidden, the figure wouldn't have been 12% in June 2024. The sudden surge after the change in government shows that banks are now trying to report accurately.
"By December this year, the figure will rise further. This will affect the country's overall credit rating. Once NPLs reach 30%, there will be no such thing as a strong or weak bank – because that level of default will have a negative impact on the entire banking system and the broader economy."
He said, "As of the March quarter this year, the entire banking sector maintained only 38% provisioning, while it should have been 100%. We're not even keeping half of what's required. In most countries, fiscal policy follows monetary policy – but in our case, it's the other way around. Our monetary policy follows fiscal policy."
He added, "State-owned banks are deeply troubled. Because both the Bangladesh Bank and the finance ministry try to control them, their performance has turned negative. The central bank alone should oversee and regulate them."
Abdul Mannan, former executive director of Bangladesh Bank, said, "The number of directors in banks should be reduced, while the number of independent directors should increase. Independent directors must have the competence and qualifications to run a bank themselves. In 2008, total defaulted loans in the banking sector stood at Tk23,000 crore. By 2025, that figure will have exceeded Tk5.3 lakh crore."
He added, "In monetary policy, the government borrows over Tk1 lakh crore more than planned. This deviation from monetary discipline is fuelling inflation."
Towfiqul Islam Khan, additional research director at the Centre for Policy Dialogue (CPD), said, "The problem of NPLs that once plagued state-owned banks has now spread to private banks. The list of audit firms that conduct bank audits should be made public. Banks must maintain professionalism, and management decisions should not be influenced by their boards."
He added, "The ongoing reforms at Bangladesh Bank lack participation and transparency. Private banks have gained popularity because of better customer service, while people often avoid state-owned banks due to long queues and inefficiency. The central bank, which once operated professionally, is now lacking that quality."
He said, "It's time for the central bank to publish detailed data on all banks. Banks operate using depositors' money, so their information should be made publicly available."
Towfiqul said that many troubled banks have become good banks now, and even included their names in the five top profit-earning banks in the country. But this has been possible only by giving preference to professionalism in bank operations.
Bank directors' mindset as the owner of a bank has to be changed as an entrepreneur and custodian of general depositors' money, and this will help establish good governance in the banking sector, he added.
