Fresh concerns over the true health of the country’s banking system have surfaced at a high-level workshop organised by the Bangladesh Institute of Bank Management in Dhaka. The event, titled “Monetary Policy Statement: Relevance for Banks”, brought together senior policymakers, economists and banking executives, many of whom warned that concealed non-performing loans, fragile governance and weak coordination between fiscal and monetary authorities are placing financial stability under mounting strain.
A former adviser to a central bank governor, Ahsan Ullah, disclosed that the actual ratio of non-performing loans may stand at an alarming 35.7 per cent—far exceeding previously published figures. He argued that years of regulatory forbearance and opaque reporting have delayed essential reforms, eroded asset quality and placed sustained pressure on banks’ capital buffers. According to participants, the accumulation of stressed assets has diminished investor confidence and weakened the resilience of several institutions.
Key Stress Indicators in the Banking Sector
| Indicator | Current Estimate | Potential Impact |
|---|---|---|
| Actual non-performing loan ratio | 35.7% | Severe deterioration in asset quality |
| Government borrowing from banks | Over Tk 1.3 trillion | Risk of crowding out private sector credit |
| Inflation target | 4–5% | Increasingly difficult to achieve |
The central bank’s Chief Economist, Dr Ahsan H Mansur Akhtar Hossain, described the prevailing monetary environment as “disjointed”. He suggested that distortions in the credit market—partly driven by influential interest groups—have led to inefficient allocation of financial resources, thereby heightening moral hazard. In periods of elevated inflation, higher interest rates may attract riskier borrowers, potentially sowing the seeds for a fresh surge in defaults.
Participants also highlighted a persistent lack of coordination between the central bank and the Ministry of Finance. When policy signals are inconsistent, inflation control becomes more challenging and market expectations less anchored. Volatile global energy prices and domestic supply constraints were cited as additional impediments to price stability.
Mohammad Ali, Managing Director of Pubali Bank Limited, cautioned that excessive government borrowing from the banking system could restrict credit availability for the private sector. He further observed that financially stronger clients are increasingly shifting towards better-governed banks, thereby intensifying vulnerabilities among weaker institutions.
The keynote paper outlined a reform roadmap beginning in January 2026, including the introduction of risk-based supervision, restructuring frameworks for fragile banks, strengthened governance standards, improved asset recovery mechanisms and development of the domestic bond market. Expanding financial inclusion and promoting cashless transactions were also identified as priorities.
Deputy Governor Nurun Nahar characterised the Monetary Policy Statement as a strategic guide for banks navigating a turbulent environment. The workshop’s chair, Director General Dr Md Ejazul Islam, underscored the importance of research-driven dialogue, insisting that without sustainable reform and robust accountability, long-term stability in the banking sector will remain elusive.