World Bank Approves $450m Banking Reform Loan

The World Bank’s Board of Executive Directors has approved a US$450 million financing package aimed at strengthening Bangladesh’s banking sector, improving financial stability and restoring confidence among depositors. The funding is also expected to support broader economic growth and job creation by reinforcing the country’s financial infrastructure.

The decision was taken on Wednesday at the World Bank headquarters in Washington. The development was later confirmed in a statement issued from the organisation’s office in Dhaka. The funds will be disbursed under the Financial Sector Support Project-2, which focuses on improving the resilience and governance of Bangladesh’s banking system.

A central objective of the initiative is to enhance protection for small depositors and make banking supervision by Bangladesh Bank more effective. The project will also expand the capacity of the deposit protection framework by strengthening the deposit insurance fund, ensuring it is better equipped to respond during periods of financial stress.

Another key component involves establishing a structured mechanism to provide emergency liquidity support to banks when needed. The programme further includes the development of strategies for resolving distressed or failing banks, alongside targeted assistance for reforms in state-owned commercial banks, which have long been a focal point of sectoral reform discussions.

According to the World Bank, Bangladesh’s banking sector is currently facing multiple structural challenges. These include weak corporate governance, limitations in regulatory oversight, and irregularities in lending practices. As a result, non-performing loans have risen sharply. By March 2026, the non-performing loan ratio had reached 32.6 per cent, significantly higher than the South Asian regional average of 7.9 per cent.

The sector’s capital position also reflects strain. By December 2025, the risk-weighted capital adequacy ratio stood at negative 2.6 per cent, underscoring the fragility of balance sheets across parts of the banking system.

Jean Pesme, World Bank Division Director for Bangladesh and Bhutan, said that a stable and inclusive financial sector is essential if Bangladesh is to move towards becoming a trillion-dollar economy. He noted that current pressures on the banking system make reform and stabilisation measures particularly urgent.

He added that the project is designed to strengthen depositor protection, rebuild public confidence and restore stability within the banking system, which in turn should help expand economic activity and employment opportunities.

The programme will also support the modernisation of Bangladesh Bank’s information and communication technology infrastructure. This is expected to improve cyber security resilience, enhance data analytics capacity and enable more effective risk-based supervision of financial institutions.