According to Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), several banks in Bangladesh are on the brink of collapse but are being sustained through government bailouts.

Fahmida made these remarks during a media briefing titled ‘Bringing Discipline Back to the Banking Sector Immediately,’ organized by the CPD at its office in Dhaka yesterday.

The briefing comes in the wake of significant political changes in the country, with an interim government led by Nobel laureate Professor Muhammad Yunus assuming power following the ousting of the Sheikh Hasina-led Awami League government on August 5 amid a mass uprising.

Fahmida highlighted that some banks, particularly those established during the 15-year tenure of the Awami League, are now struggling to stay afloat. These third—and fourth-generation banks, she argued, are ailing and should be allowed to shut down rather than kept alive artificially through public money injections.

“Several previously robust banks have also seen a decline in their performance due to hostile takeovers by crony capitalists,” Fahmida added.

She cited the example of Islami Bank Bangladesh, which was severely weakened after being taken over by S Alam Group, and subsequently took out approximately Tk 30,000 crore in loans from the bank. Similarly, state-owned Janata Bank was implicated in lending Tk 10,000 crore to Anontex Group, a move that violated the single borrower exposure limit. Fahmida questioned the fairness of such practices, asking, “If a single borrower gets so much money, then what will other clients get?”

The CPD’s analysis also sheds light on the broader issues plaguing Bangladesh’s banking sector, revealing that approximately Tk 92,261 crore was embezzled through 24 major banking scams between 2008 and 2023. This figure is equivalent to 12 percent of Bangladesh’s national budget for the fiscal year 2024 or around 2 percent of the country’s GDP for FY23.

Fahmida criticized the previous government’s failure to protect the banking sector, stating that commitments to safeguard the industry were not upheld. She also expressed concerns about the lack of autonomy of the Bangladesh Bank, the country’s central bank. According to Fahmida, the central bank does not operate independently, particularly regarding the formulation and implementation of monetary policy.

To strengthen the Bangladesh Bank’s autonomy, Fahmida recommended the abolition of the Financial Institutions Division (FID) of the finance ministry, which she argued contradicts the Bangladesh Bank Order of 1972. The FID’s mandate, she noted, allows it to exert undue influence over the central bank’s governance, undermining its independence.

The CPD also pointed out that the Bangladesh Bank (Amendment) Act of 2003 stipulates that new governors or deputy governors should not be current or former government officials. However, this provision has not been effectively implemented, leading to concerns about conflicts of interest and the potential for regulatory capture.

Professor Mustafizur Rahman, a Distinguished Fellow at CPD, also spoke at the briefing, emphasizing the need for the central bank’s autonomy. He argued that there should be no separate agency like the FID to control the central bank if it is held accountable to the parliament. “We must give autonomy to the central bank,” Rahman asserted.

The CPD recommended the establishment of a goal-specific, time-bound, transparent, unbiased, inclusive, and independent banking commission to bring transparency and accountability to the banking sector. Additionally, the think-tank proposed strengthening the Bangladesh Financial Intelligence Unit (BFIU) to combat money laundering more effectively.