Default loans exposed, market stability restored as banking reforms usher in new hope
Under the reform programme, the Bangladesh Bank identified default loans of Tk6.44 lakh crore as of September, which was 36% of total loans, three times higher than the amount shown during the previous regime
Bangladesh Bank's sweeping reform measures under the interim government – ranging from exposing the true scale of default loans to stabilising the foreign exchange market and enforcing monetary discipline – have marked a decisive turning point for the country's banking sector and are expected to shape its future governance.
These measures have restored depositor confidence, increased liquidity and contributed to a steady decline in inflation. Although inflation did not come down to the expected level, its further rise has been checked. However, little progress has been made in the repatriation of assets siphoned off from Bangladesh.
Under the reform programme, the Bangladesh Bank identified default loans of Tk6.44 lakh crore as of September, which was 36% of total loans, three times higher than the amount shown during the previous regime.
The huge default loans that were assessed through asset quality review by engaging foreign firms under the reform programme helped the central bank to go for proper treatment for weak banks.
Keep updated, follow The Business Standard's Google news channel
In a landmark move, the Bangladesh Bank merged five Islamic banks – each burdened with default loan ratios exceeding 90% – to form a new entity, Sammilito Islami Bank.
Bangladesh Bank board also decided to liquidate another nine non-bank financial institutions, which are currently not in a position to continue to operate due to high default loans.
The total estimation for merger and liquidation is Tk70,000 crore, of which will be provided from the taxpayers' money to mitigate the hole created by massive corruption during the ousted prime minister Sheikh Hasina's 15-year regime.
Speaking at a recent event, Bangladesh Bank Governor Ahsan H Mansur said, "We have already started addressing the issues of five weak banks and provided Tk35,000 crore. But several others remain at risk. Resolving their problems will require another Tk35,000 crore, bringing the total cost to around Tk70,000 crore."
He said this massive amount cannot be mobilised overnight. "We are considering allocations over multiple fiscal years. It will have to be a phased recovery, not a one-time fix."
The governor said the Bangladesh Bank is taking steps to liquidate nine NBFIs, and four to five more NBFIs could face liquidation if they fail to restructure or raise fresh capital.
"Those which can prove viability will be given a chance to survive. We're not promising miracles. But with time, transparency, and the rule of law, we can rebuild trust in the financial system."
Mansur also acknowledged that the default loan situation is more serious than previously disclosed. The reported NPL figure had been hovering around 9% in the past. It is 36% now. "We are not going to manipulate the data. The public deserves transparency."
The governor said the central bank aims to bring down the NPL rate to 10% by March 2026. "It might take 10 years to reduce it to 4-5%, but that is the sustainable path."
What amendment in major laws
The Bangladesh Bank also formulated at least six laws, including amending the Bank Company Act to bring corporate governance in the board of banks, the Bangladesh Bank Order to ensure central bank autonomy, introduced Bank Resolution Act for effective resolution and Deposit Protection Act raising insurance coverage ceiling for depositors, Distressed Asset Management Ordinance for tackling default loans and Money loan court to speed up case settlement.
Out of six, two major laws, including the Bank Company Act and the Bangladesh Bank Order, are still under government review after the approval from the board of Bangladesh Bank.
Although the International Monetary Fund (IMF) has been pursuing Bangladesh Bank to implement the amendment of both laws, the government has been responding slowly, according to central bank sources.
In the final draft amendment to the Bank Company Act, the Bangladesh Bank focused on limiting the power of influential individuals and families and political figures.
The proposed draft limits the number of directors from a single family and their affiliates on bank boards from five to two, and cuts a director's continuous term from 12 years to six, in a move to curb family influence in bank management.
Such dominance by certain board members has crippled the country's banking sector over the past 15-20 years, particularly during the Sheikh Hasina regime, leading to rampant loan scams, rising non-performing loans, and loss of public funds and trust.
Conglomerates such as S Alam Group gained control of multiple banks and allegedly withdrew thousands of crores of taka, much of which was, ultimately, allegedly laundered out of the country.
The central bank also proposes to bar political figures from boards, ease foreign investors' shareholding limits, restrict one person from holding large stakes in multiple banks, and treat general and wilful defaulters equally.
The draft amendment to the Bangladesh Bank Ordinance 2025 introduces major changes in key appointments, mandate, and financial management to shield the central bank from political influence to ensure autonomy.
Under the draft, the president will appoint the governor and deputy governors. While the amendment initially removed government representatives from the board, the final version retained one, according to the draft approved by the board. At present, the board includes three government representatives.
The governor's post will be upgraded from secretary to ministerial status under the draft amendment.
The Bangladesh Bank already implemented the Bank Resolution Ordinance and Deposit Protection Act through merging five banks under the amended ordinance.
Reformation in forex market
The Bangladesh Bank also reformed forex market management by introducing a greater flexible exchange rate mechanism, which helped to bring stability in the currency market.
Foreign exchange reserves rebounded strongly after the interim government cleared external arrears. The Bangladesh Bank added over $8 billion to reserves within a year, raising the total from $18.8 billion in December 2024 to $26.8 billion as of 4 December 2025, enough to cover more than four months of imports.
A more flexible exchange rate regime, coupled with aggressive policy rate hikes, restored discipline to the currency market. The taka has held steady at Tk122-123 per dollar for six consecutive months. The central bank also stopped money printing and moved swiftly to merge and restructure troubled banks, calming depositors and bringing back liquidity. Deposits increased noticeably after governance reforms at problematic banks.
These measures helped inflation fall from a 12-year high of 11.36% in July 2024 to single digits for the past six months. Food inflation, once at 14%, dropped to 7.36% in November. Although still above the Bangladesh Bank's FY26 target of 6.5%, the government's Bangladesh State of the Economy 2025 attributes the improvement to monetary tightening, supply-side interventions, stable global commodity prices, and a steady exchange rate.
Development of asset recovery
Although the Bangladesh Bank formed a task force for supporting the identification, investigation, and repatriation of assets siphoned off from Bangladesh, little progress has been made in this regard due to the complex process.
Its key functions include removing legal barriers to expedite proceedings, managing recovered assets, coordinating with international partners for information sharing, and strengthening institutional capacity and internal coordination to ensure effective asset recovery.
According to monetary policy statement of Bangladesh Bank for first half of FY26, the BFIU (Bangladesh Financial Intelligence Unit) has formed Joint Investigation Teams (JITs), led by the Anti-Corruption Commission (ACC), with participation from the Criminal Investigation Department (CID), the Central Intelligence Cell (CIC), and the Customs Intelligence and Investigation Directorate (CIID). These teams have prioritised 11 nationally significant money laundering cases and are actively investigating them.
So far, assets both within Bangladesh and abroad linked to the accused have been identified and attached. Additionally, BFIU has frozen over 6,500 suspicious accounts and shared more than 100 financial intelligence reports with relevant law enforcement agencies. The Task Force is also collaborating with several international law and litigation firms on other money laundering cases beyond the prioritized 11 cases, and is seeking to appoint legal representatives in various jurisdictions to overcome legal barriers to asset recovery.
The Task Force maintains close coordination with international organizations, including the Stolen Asset Recovery (StAR) Initiative, the US Department of Justice (USDOJ), the International Anti-Corruption Coordination Centre (IACCC), and the International Centre for Asset Recovery (ICAR), to access technical support, legal expertise, and training. To promote cross-border cooperation, the government is also working to sign Mutual Legal Assistance Treaties (MLATs) with several countries.
