Bank mergers alone won’t resolve ongoing crisis: MTB CEO

Merging weak banks with other lenders alone will not resolve the ongoing crisis in the banking sector, said Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank.

The full extent of this sector's financial distress has yet to emerge, as non-performing loans, capital shortages, provisioning requirements, liquidity pressures and governance weaknesses need to be addressed simultaneously, he said.

"Giving fresh capital or merging a bank does not automatically make a weak bank sustainable," he said at a discussion, "Financial Condition of the Banking Sector", jointly organised by the Capital Market Journalists Forum and CFA Society Bangladesh in Dhaka today (19 September).

Mahbubur, former chairman of the Association of Bankers, Bangladesh (ABB), said the volume of non-performing loans in the banking sector was around Tk28,000 crore in 2008 but has now exceeded Tk600,000 crore, accounting for more than 32% of total loans. 

Many rescheduled loans could also become classified again in the future, he warned.

According to a CFA Society Bangladesh analysis based on Bangladesh Bank data, the banking sector's NPL ratio stood at 32.8% in June 2026. As of December 2025, the top five banks accounted for 51.87% of total NPLs, while the top 10 accounted for 73.63%.

Mahbubur said implementing International Financial Reporting Standard (IFRS) 9 could provide a clearer picture of banks' credit risks and provisioning requirements, potentially putting additional pressure on the capital positions of some banks.

"There is no such thing as giving Tk50,000 crore today and fixing a bank tomorrow," he said.

On the government's initiative to merge five weak banks, he said a merger between a strong bank and a weak or specialised bank could create operational synergies, but merging one weak bank with another weak bank may not deliver the expected benefits.

After a merger, overlapping branches, employees and management structures need to be reduced to lower operating costs and improve efficiency, he said, adding that simply changing ownership or the name of a bank while retaining the existing structure would not deliver the real benefits of consolidation.

The CFA Society analysis showed that deposits grew 10.74% in June 2026, while private-sector credit increased only 4.47%. Meanwhile, banks' investments increased 30.3%. In 2025, investment in government securities reached 14.1% of total banking-sector assets.

Mahbubur said the rise in investment in government securities while loans and advances were declining at many banks could generate income in the short term, but could not replace banks' core business.

"The core business of a bank is to lend and take deposits. Therefore, a decline in net interest income is a bad sign for banks and the banking industry as a whole," he said.

The sector's net operating profit increased 116% to Tk32,108 crore in 2025, but provisioning against bad loans rose to Tk249,600 crore.

The sector's overall capital adequacy ratio also fell to negative 2.64% at the end of 2025, against the regulatory minimum of 10%. However, 42 banks met the requirement, representing 60.51% of total sector assets.

Mahbubur said banks need to increase low-cost deposits, particularly CASA, and use technology to reduce operating costs. Rather than indiscriminate layoffs, banks should improve productivity through technology and efficiency.

He said stronger governance, accurate assessment of banks' financial condition, adequate provisioning and compliance with international accounting standards are essential for restoring stability.

"To make the banking sector sustainable, we need more than mergers. We need targeted restructuring where necessary and structural reforms across the sector," he said.