The World Bank (WB) has warned that the distressed banking sector is the primary hurdle to the incumbent BNP government's ambition of transforming Bangladesh into a US$1.0 trillion economy by 2034. The barrier to achieve this ambitious goal, the international agency responsible for reducing global poverty and promoting sustainable economic development in developing countries pointed out, is the financial system that is structurally fragile and heavily tied to the government's fiscal operations. The sector holds about US$212 billion in assets (50 per cent of GDP) but suffers from severe structural vulnerabilities.
One of the key reasons for this state of affairs as cited by the WB is the staggering Non-Performing Loans (NPLs) that the state-owned commercial banks are burdened with. As of March 2026, the NPL ratio hit (32.6 per cent), which means about one-third of all the loans sanctioned by banks in the country are bad loans or classified. Bangladesh banking sector's NPL ratio vastly exceeds the South Asian average of 7.9 per cent, not to speak of the international standard at 2.0 per cent. This severely constrains liquidity and drains capital from the economy. The banks thus suffered from deep capital shortfalls: By late 2025, the system-wide Capital-to-Risk-Weighted Assets Ratio had fallen to negative (-2.6 per cent), while capital shortfalls across major lenders reached roughly Tk 1.55 trillion.
The systemic failure of banks to maintain transparency, accountability and ethical management which constitute weak corporate governance was marked by years of regulatory capture, influence over supervisors and non-transparent lending. Together these factors eroded systemic trust and threatened to trap capital, leaving institutions heavily reliant on central bank liquidity support.
Now that the economy relies so heavily on banking assets and a major share of the national budget deficit is borne directly by this sector, the banking instability critically undermines both private investments and government development plans. Against this backdrop, to help mend these institutional deficiencies and support growth, the WB recently approved a US$450 million programme, called the Financial Sector Support Programme, to back up sweeping reforms in the banking sector. The programme aims to restore stability and build trust in the financial sector thereby enabling it to better support economic growth and job creation. In this connection, the WB noted that Bangladesh's vision of attaining a trillion-dollar economy requires a stable and inclusive financial sector. Also, the global lender notes that the banking sector of Bangladesh accounts for 90 per cent of the total financial sector assets, which is facing 'mounting stress'.
Unfortunately, so far the banking system rather than serving the low-income groups, the rural population, women and the informal sector workers, helped the powerful, especially the big businesses, the rich and the politically connected people. Unsurprisingly, these same people actually rendered the banking sector dysfunctional by stealing common depositors' money. The banking service played the role of a facilitator in the looting. This is not to say that the bankers did that willfully. To be frank, in most cases, they were helpless as they had a job to protect. But this apart, one has also to take into consideration the fact that in general the financial service of the traditional banking sector is designed to serve clients who are rich and powerful. Unsurprisingly, the financial sector or for that matter the banking sector could not become a tool for broad-based economic empowerment, poverty alleviation and resilience. On this score, it would be worthwhile to note that the World Bank project under consideration aims to help Bangladesh establish the tools, systems and safeguards needed to protect small depositors. This stance of the global lender speaks volumes for whose interest the banking sector reform is meant to serve. But the traditional banking system of the country, though it proved servile when it came to promoting the rich, has been rather insensitive to the cause of the vulnerable clients including individuals, jobholders and small businesses who might have sustained job-loss, or natural disasters. In that case, inclusive banking service that the banking sector reform promises should enable the vulnerable, especially the marginalised segment of society to withstand the crises and thus become resilient to such shocks. Undoubtedly, these are the necessary conditions for the banking system to become a tool of poverty alleviation. Obviously, the banking sector--- even once it becomes stable and is able to earn confidence of general depositors after reforms --- cannot be expected to turn automatically into an engine of growth. A robust banking sector presupposes a healthy economy. In truth, the bank is an intermediary, a facilitator in this regard. So, to fulfil the incumbent government's dream to join the club of trillion-dollar economies, it will have to abandon the prevailing culture of opening the door of state resources to the affluent and those affiliated with ruling party politics. To be more particular, the politics, meaning ruling politics, in sync with the financial sector, needs to be transformed. No doubt, this is the hardest part of all reforms. For the economy, won't turn into a trillion-dollar one even through pumping in billions of dollars or trillions of Taka, if the system has leakage. The capital flight has been the part of the problem for too long. The economies that are already advanced, for instance, are the destination of the capital flight from countries like Bangladesh, not the other way around. Then, who are behind such capital flight? The answer is too obvious.
Now compare the behaviour of the affluent class with that of the migrant workers, who send the money they earn overseas back home. Who are the migrant workers? Clearly, they belong to the low-income, underprivileged segment of society. So, until the low-income, the poverty-stricken as well as women belonging to these segments of society are made part of the formal economy that the banking sector serves, we are not talking about an inclusive economy, or for that matter, an inclusive financial sector. In that case, as the WB would like to term unlocking the growth potential, it is to unlock the potential of the underserved. The secret of Bangladesh's economy turning into a trillion-dollar size exactly lies here.
sfalim.ds@gmail.com