Stay orders won’t shield defaulters: BB governor 

Infographics: TBS

Bangladesh's banking sector has suffered from deep-rooted corruption over the past 16 years under the Awami League government, leaving over a dozen banks and non-banks in dire straits, unable to repay depositors.

After the AL government's fall amid a mass uprising last August, Economist Ahsan H Mansur became the Bangladesh Bank governor. In this exclusive interview with The Business Standard, Governor Mansur discusses the progress made in restructuring the banking sector during his nearly one-year tenure. TBS Special Correspondent Jebun Nesa Alo and Staff Correspondent Sakhawat Prince conducted the interview. This is the first of a three-part series.

After taking charge, what was your first impression of the banking sector?

Before joining the government, I had been closely observing the banking, financial, and overall economic landscape through my work at the Policy Research Institute. So, stepping into this role, I wasn't surprised. What struck me was how clearly the concerns we had from the outside were confirmed from within.

The corruption is deep-rooted, the banking system has been severely weakened, and large-scale looting has taken place. These weren't isolated cases — they reflect systemic, state-level failures. What we once suspected has now become clear through direct evidence.

I may have underestimated the scale. I had thought non-performing loans (NPLs) were around 24%–25%, while the previous government claimed it was just 10%. In reality, it's likely closer to 30% or even higher. As of March, NPLs had already crossed 24%, and I expect them to approach 30% by June.

This isn't good news—but it's the reality. We must face it head-on. Denial or minimising the problem won't fix anything.

What measures have you taken to address the state of the banking sector since taking office?

We've established three dedicated taskforces.

The first, the banking sector reform taskforce, is leading a major initiative — the Asset Quality Review. Through this process, we found that some banks, hijacked by vested interest groups and looted with state-level backing, now have up to 98% of their loan portfolios classified as non-performing. Essentially, these banks have been stripped of their assets. In many cases, multiple members of the same family were involved in the embezzlement.

The second taskforce is focused on strengthening Bangladesh Bank itself — enhancing the skills and capacity of its officials. Our broader goal is to build an independent central bank with greater operational autonomy. We've submitted proposals to the government and recommended legal reforms to support this.

The third taskforce is working to recover funds laundered abroad. We're actively pursuing efforts to trace and bring back stolen money transferred out of the country.

What did the asset quality review reveal?

We found that the collapse didn't happen overnight. Over the past eight or nine years, banks — and non-banks — were gradually captured by vested groups. Once they gained control, they systematically siphoned off funds.

These institutions were treated like a "honeypot" — something to be raided without any concern for the safety of depositors' money. 

What's more disturbing is that this happened openly, with both the government and Bangladesh Bank looking on. In some cases, those in power even facilitated the process.

Civil society did raise concerns, and I, too, repeatedly warned from the outside. I personally told a former central bank governor, "Watch out for Mr X. If he takes over these banks, the entire sector could collapse." I even warned, "If multiple banks fall at once, we'll need ambulances."

The stark truth is that the banking sector was effectively handed over to one family (S Alam) to exploit.

What steps are you taking to prevent such crises in future?

Our top priority is to address the 12–13 banks that were looted. We're focused on restoring these institutions and ensuring depositors recover their money.

We're also pushing forward with legal reforms. One key step is updating loan classification rules to align with international standards. Under the new framework, any overdue loan will be marked as non-performing after three months — a significant shift from the previous system, where banks had six months to a year.

What we've found is that banks with strong boards and sound governance have stayed relatively stable. That tells us clearly: good governance is essential, and establishing it across the entire sector is one of our central objectives.

You're introducing several new laws, especially changes to the Bank Company Act. What kind of reforms are being planned?

We're proposing that bank directors must pass a "fit and proper" test to qualify. We also aim to reduce the number of family members allowed on a bank's board — currently up to four — and recommend a lower limit.

At least 50% of board members must be independent directors, ideally more. These directors will be appointed from a Bangladesh Bank–approved panel, not chosen by the banks themselves. Any exceptions will still require central bank approval.

The goal is to restore strong governance — something we've seen is key to avoiding major crises.

Are you planning to amend the loan recovery laws?

Yes, we intend to revise the Money Loan Court Act. If the judiciary continues operating as it currently does, the financial sector will struggle to recover.

Progress requires close coordination between the Bangladesh Bank, the government, and the judiciary. To meet international standards, all institutions must act in sync.

I've noticed many business groups use court-issued stay orders to avoid being classified as defaulters. For example, a few months ago, despite a court stay order in an Agrani Bank case, the borrower was still declared a defaulter, and a warrant was issued.

Personally, I believe defaulters should be identified as such. Even if the High Court grants a stay order, we will classify borrowers based on the bank's assessment, since banks have deeper knowledge of a borrower's financial condition than the courts do.

The asset quality review has focused on six banks. Some banks might be merged. Could you elaborate on this?

We have identified banks that cannot recover on their own, and these will be brought under merger plans. However, among the weak banks, some are showing signs of recovery. For example, Islami Bank has already turned around, and we are optimistic about its performance. Similarly, UCB Bank has also recovered.

Some banks have NPL ratios as high as 70% to 95% and cannot recover on their own. To protect depositors, we plan to temporarily nationalise and merge them. These banks will operate as state-owned for a period, then return to the private sector with stakes offered to local and foreign investors, as well as the public.

How much might the government invest in the merger process?

It's too early to give a precise figure, but restructuring five banks in the first phase may require around Tk15,000–20,000 crore. Additional investments will follow over time.

The government will make the initial investment—likely through the budget or by issuing recapitalisation bonds. Interest will be paid initially, with the principal held as bonds to strengthen the banks' capital base.

Later, ownership will gradually shift to local and foreign investors, with shares also floated on the stock market. Proceeds will be reinvested to further capitalise the banks.

Personally, I have no objection to 100% foreign ownership if the investor comes as a strategic partner with banking expertise and brings in global best practices.

Are you confident these shares can be sold? And will foreign investors actually come?

Yes, we're already seeing signs of interest from foreign investors, though no formal proposals have come in yet, as the merger process is still ongoing.

Once the mergers are completed, likely within six months, we plan to bring the shares to market. We'll appoint transaction advisers — possibly different ones for each bank — who will promote these banks to potential investors. The Bangladesh Bank will oversee the selection of these advisors.

Take Islami Bank, for example. If the government can recover Tk10,000–20,000 crore from the S Alam Group based on share value, those shares will also be sold. This strategy should make it easier to attract strategic investors, and early interest is already emerging.

How will you deal with people who acquired loans or bank shares through corruption?

Many of these individuals don't appear directly in official documents, but forensic audits have revealed that the funds, after passing through various layers, ultimately benefit a single family.

In some cases, people have confessed to facilitating these transactions or being involved. Even if the penalties are limited, such evidence gives us a legal basis to take action.

How long will it take for the banks to recover after the mergers?

I believe it will take about five to seven years for a full recovery—this is entirely feasible. Banks like Eastern Bank and City Bank also went through crises but bounced back with strong leadership and committed boards.

Liquidity is already improving in some of these banks. Still, if everyone tries to withdraw their money at once, they may fall short on cash. So, I urge customers to be patient.

Small depositors — those with up to Tk2 lakh — can withdraw anytime. There's no need to panic, especially since nationalisation ensures their funds are government-backed.

For large or institutional depositors with Tk100–200 crore, we may offer a mix of shares and partial cash to reassure them. We've used this approach before — Eastern Bank depositors got shares that later exceeded the value of their original deposits. It's a proven method, not a new experiment.

Can you tell us about the taskforce formed to strengthen BB's capacity?

Our aim is to build Bangladesh Bank's capacity so that it can resist political pressure.

In some countries, central banks are constitutional bodies like the judiciary; in others, they operate as independent statutory bodies. But in either case, the key is ensuring independence through a strong legal framework.

As you mentioned, when President Trump pressured the US Federal Reserve to cut interest rates, the Fed replied, "The time isn't right—we'll decide when it is." That's the kind of independence we want to establish here.

Why is central bank independence important?

Because governments often make decisions based on short-term political gains, which can undermine long-term economic stability. The central bank needs the authority to manage the economy and financial sector without interference, allowing it to implement sound policies.

Key powers — like board appointments, interest rate decisions, and exchange rate management — should lie with the Bangladesh Bank. We're working on legal reforms to ensure that.

If the current interim government can secure this independence, it will leave behind a lasting legacy and a vital contribution to nation-building.

But, wouldn't a political govt resist this goal?

In many cases, political governments actually support such reforms. Around the world, these kinds of changes have often been initiated by political leaders themselves. Take the US, for example, where the independence of the Federal Reserve was established by politicians.

Once we set a strong international standard, it becomes very difficult to undo. We need to legally guarantee that no government can interfere with the central bank's operations.

How will BB achieve structural independence?

We need to amend the Bangladesh Bank Order of 1972 to clearly define its objectives.

The central bank's primary goal will be inflation control. If it fails to meet the target, it must explain the reasons — be it global shocks, war, or price hikes.

A stronger joint advisory committee, comprising the Bangladesh Bank and the finance ministry, will set the inflation target and policy guidelines. Politics will have no place in this process.

The second key objective will be ensuring financial sector stability. To do this, the central bank must be empowered to restructure bank boards, adjust capital levels, and intervene when necessary.

Hasn't BB already had the authority to replace bank boards?

The authority wasn't clearly outlined before. Now, with the introduction of the Bank Resolution Ordinance, the central bank can take over a failing bank that's no longer viable.

However, to fully and independently exercise this power, we still need to amend the Bangladesh Bank Order. The law exists, but formal empowerment through legal reform is essential.