The great treasury shift: How banks migrated profitability to government bonds

Several private banks in Bangladesh have managed to sustain or even increase their profits despite a challenging financial environment, not through core banking operations, but by shifting heavily towards income from government securities (G-Secs).

For some lenders, as much as Tk6–8 out of every Tk10 earned now comes from bonds. This marks a major transformation in their profit model, driven by the move to high-yield, risk-free government debt.

Infograph: TBS

Replacing shrinking core margins

The core indicator of a bank's profitability, net interest income (NII) — the difference between interest earned on loans and interest paid on deposits — has declined sharply across the sector.

To offset this, many banks turned to G-Secs, using rising investment income to compensate for falling NII.

At City Bank, NII dropped nearly 87% in January–September 2025, falling to around Tk150 crore from Tk1,172 crore a year earlier.

Over the same period, investment income more than doubled to Tk2,775 crore, now making up about 77% of total operating income.

BRAC Bank saw a similar trend: NII declined by nearly Tk100 crore (7%) in the first nine months of 2025, while investment income rose by Tk1,429 crore (73%), lifting total operating income by 22%. Treasury operations now account for 55.3% of the bank's income.

The shift was even more pronounced at Bank Asia, where NII turned negative (a loss of Tk110 crore) in the first half of 2025. Yet, almost doubled investment income prevented a major profit collapse.

Investment returns now contribute nearly nine-tenths of the bank's operating income.

For banks, of every Tk10 they earn, 6-8 now comes from bonds. But for how long?

Mutual Trust Bank (MTB) also saw a sharp realignment — NII plunged 58%, but investment income almost doubled, now accounting for 60% of total operating income.

Capitalising on high-yield, low-risk assets

The shift was fuelled by a rise in yields on government papers, which climbed to 12–13% across maturities by mid-2024 — the highest in a decade.

Banks capitalised on these rates, viewing G-Secs as safe and profitable alternatives amid rising default risks in private lending.

These bonds offered "high return, no NPL, and risk-free" income — a sharp contrast to volatile lending markets. Even conservative institutions such as Eastern Bank Limited (EBL) increased investment income by 39% in the first nine months of 2025, with government securities making up 86% of its investment portfolio.

Redirecting surplus liquidity

With weak industrial activity and slow private sector credit growth (around 6%), banks found few viable lending opportunities.

Many managing directors said deposits continued to grow, leaving them with excess liquidity.

By investing this surplus in G-Secs, banks secured stable returns without reducing deposit rates. Some institutions locked into long-term government bonds of 10 to 20 years to ensure sustained high yields.

For Dutch-Bangla Bank Limited (DBBL), this approach paid off significantly — investment income rose 127% year-on-year in the first half of 2025, with treasury operations contributing over one-third of its total operating income.