A crisis of confidence has gripped the country鈥檚 banking sector amid little action taken to resolve the deep-rooted challenges facing the sector and hold those accountable for years of malfeasance and mismanagement.
According to several officials of the Bangladesh Bank and other banks, aside from limited board restructurings in a few banks, no major reforms have been initiated since the interim government assumed office on August 8.
Despite initial hopes that the banking sector would stabilise after Sheikh Hasina resigned as prime minister and fled to India on August 5, the situation has barely improved.
Many banks are still unable to meet depositor demands, facing continued erosion of public trust causing panic fund withdrawals.
On September 8, new central bank governor Ahsan H Mansur acknowledged that around 10 banks faced risk of bankruptcy鈥攁 statement that further deepened the clients鈥� panic intensifying the rush of withdrawals.
The situation deteriorated further after the central bank restructured the boards of 11 banks and announced that it would not directly provide them with liquidity support.
These moves only deepened depositor mistrust, making it increasingly difficult for struggling banks to recover.
In response to the crisis, the central bank began providing limited support by guaranteeing interbank loans, disbursing Tk 5,000 crore to six distressed banks over the past one month.
The sector鈥檚 liquidity crisis, however, persists, with depositors still deeply concerned about the security of their funds.
Mutual Trust Bank managing director and chief executive officer Syed Mahbubur Rahman said that currently approximately 15 banks were battling against various crises that were unlikely to resolve soon.
He noted that aside from board restructurings at some banks, no significant reforms had yet been observed, adding, 鈥榃e anticipate some visible reforms by December this year.鈥�
Mahbubur said that although boards were restructured, much of the same senior management remained in place, casting doubt on their intension to lead meaningful changes.
He acknowledged the challenge of replacing senior management staff who had been in place for years.
On the crisis of confidence among depositors, Mahbubur highlighted that a quarter of banks were struggling with a severe liquidity crisis failing to repay depositors鈥� money.
Besides, he also mentioned the prevailing overall uncertainty and poor law and order situation as some key factors behind the ongoing crisis in the banking sector.
鈥楪overnment officials, including bankers, are currently in a 鈥渨ait and see鈥� mode given the broader political climate,鈥� he remarked.
As of the last working day in August, total bank deposits dropped to Tk 17.31 lakh crore from Tk 17.34 lakh crore in the last working day in July.
In end of August, currency outside banks surged for the 10th consecutive month, reaching Tk 2.92 lakh crore as depositors continued withdrawals.
Non-performing loans skyrocketed to Tk 2.11 lakh crore by June, up from Tk 88,734 crore in December 2021, underscoring the sector鈥檚 prolonged loan irregularities.
S Alam Group withdrew around Tk 2 lakh crore loans through companies including shell firms in collusion with some banks and central bank officials.
Similarly, Beximco Group borrowed Tk 25,000 crore from Janata Bank of which Tk 18,000 crore is now non-performing.
The central bank has largely turned a blind eye to such massive loan irregularities, often aiding these groups through relaxing regulations and maintaining silence.
Consequently, the sector faces a crippling liquidity shortage, with depositors losing trust not only in individual banks but also in regulatory bodies.
According to bankers, influential officials with strong ties to powerful political and business groups have retained their positions, blocking meaningful reform efforts.
Even within the central bank, key officials linked to groups like S Alam and Bashundhara remain in place, leading to the bank鈥檚 failure to address or expose corrupt practices, they observe.
So far, the Bangladesh Bank has refrained from taking punitive action against bank officials involved in these activities, perpetuating a lack of accountability and further deepening the sector鈥檚 ongoing crisis.
Additionally, the persistent dollar crisis, elevated exchange rates, acute liquidity shortages, and high-interest rates are deterring businesses from securing loans and opening letters of credit, negatively impacting the economic.
The government, facing this bleak scenario, has also struggled to secure sufficient loans from the banking sector.
Bangladesh Bank鈥檚 spokesperson and executive director, Husne Ara Shikha, stated that the central bank has restructured the boards of 11 banks to rebuild public trust and ensure good governance.
Regarding allegations that information on prior irregularities involving senior bank officials has been concealed, she clarified that the responsibility lay with the respective bank鈥檚 board to remove, transfer, or replace employees, including the managing director, for the sake of public interest.
Moreover, the central bank would make final decisions based on recommendations from the respective boards, she said.
The central bank was committed to taking action against any bank officer if complaints were found valid, said the Bangladesh Bank executive director.