Political interference is one of the biggest risks facing Bangladesh’s banking sector, while resistance to governance reforms has also emerged as a major challenge, according to the General Economics Division (GED) of the Ministry of Planning.
The GED has recommended legally ensuring the operational autonomy of Bangladesh Bank to reduce political influence over the banking sector.
The recommendations were made in the GED’s Five-Year Strategic Framework for Reform and Development, a recently published report outlining strategies and policy measures for reforms and development across various sectors over the next five years.
According to the report, weak roles of bank boards and a culture of lending without proper due diligence have severely undermined risk management in the banking sector. Political influence has also created opportunities for irregularities in loan disbursement, recruitment, restructuring of defaulted loans and issuing bank licences.
The report said Bangladesh’s banking sector is currently suffering from record levels of non-performing loans (NPLs), weak corporate governance, political interference and preferential treatment for influential and politically connected individuals. These problems have weakened banks’ capital positions and profitability, with state-owned banks bearing the greatest impact.
Government data showed that NPLs stood at Tk 5.57 trillion at the end of December 2025, accounting for 30.6 percent of total outstanding loans. The GED has set a target of reducing the NPL ratio to 10 percent by 2031.
The GED has proposed implementing a five-year banking sector reform programme in three phases.
During the first year, the focus will be on immediate risk control and loss mitigation. High-risk banks will be identified, while measures will be taken to protect depositors and bank assets. Bangladesh Bank will be given greater operational autonomy, and distressed banks will be placed under stricter supervision.
The report also recommends quickly identifying willful defaulters and taking legal action against them, introducing internationally aligned rules for NPL classification and provisioning, and implementing a “fit and proper” policy for bank directors and senior management. Boards involved in irregularities or persistent failures should also be restructured, it said.
The GED further proposed making the deposit protection fund fully operational, strengthening the capital base of merged banks and preparing immediate roadmaps for returning deposits held with troubled banks.
During the second and third years, emphasis will be placed on financial restructuring and strengthening risk management. Bangladesh Bank’s operational independence will be further reinforced, while strict stress testing will be introduced under a risk-based supervision framework.
The government also plans to strengthen monitoring of large borrowers and establish clear criteria for appointing directors to bank boards. Restrictions have also been proposed on the number of directors from the same family and the length of their tenure.
During the fourth and fifth years, the focus will shift toward long-term and structural reforms. Laws will be amended to bring Bangladesh Bank’s supervisory capacity up to international standards, while information management systems will be fully automated.
Under the proposed framework, Bangladesh Bank will directly oversee reforms related to banking supervision and regulation. The Financial Institutions Division (FID) will coordinate legal reforms involving state-owned banks and other financial institutions.
Progress will be measured through indicators including banks’ capital adequacy, liquidity, asset quality and depositor confidence. Reform progress will be reviewed annually, with a mid-term assessment scheduled for fiscal year 2028.
The GED stressed that simply increasing lending would not be enough to resolve the banking sector’s current problems. Banks must first clean up their balance sheets through loan write-offs and recovery of defaulted loans, it said.
Reducing the burden of bad loans would allow banks to extend credit more safely to productive sectors such as small and medium-sized enterprises, agriculture and industry.
According to the GED, this would help increase investment and employment while strengthening the banking sector’s contribution to the broader economy.
