Year marked by negative discussions, fear of losing deposits

Throughout the year, the banking sector was at the center of discussions due to irregularities, non-performing loans, and large-scale embezzlement under various guises. Issues such as the looting, monopolization, and money laundering by the S. Alam Group drew significant attention. Following the political unrest in July-August, the banking sector saw changes in key positions, including the governor of Bangladesh Bank, dissolution of private bank boards, restructuring of senior roles in state-owned banks, and liquidity crises that hindered meeting customer demands. However, the printing of money to provide liquidity support to struggling banks hinted at a recovery by the year’s end.

Banking Challenges and Measures

Stakeholders revealed that during the long tenure of the previous government, certain influential business groups, notably S. Alam Group, gained control of multiple banks by acquiring shares under various names. These groups not only assumed ownership but also embezzled funds in the guise of loans, often laundering money abroad. Though these activities were largely concealed, they became public after August 5, when Sheikh Hasina left the country. This sparked unrest, with depositors racing to withdraw their funds, deepening the crisis.

The interim government initiated reforms to uncover the reality of these irregularities. Notable steps included forming a task force to address structural issues in the sector—an action long desired by stakeholders. Additionally, Bangladesh Bank restructured the boards of 11 banks to protect depositors’ interests, gradually alleviating the crisis.

Banking Statistics and Financial Snapshot

According to a report by the committee drafting the white paper on the economy, the banking sector witnessed the highest level of corruption during the Awami League’s 15-year rule. As of June 2024, troubled loans amounted to 6.75 trillion BDT, of which recognized non-performing loans stood at 2.11 trillion BDT. Rescheduled and restructured loans were 2.73 trillion BDT, while 750 billion BDT had been written off.

Key Reforms

1. Board Restructuring

Following Sheikh Hasina's departure, economist Dr. Ahsan H. Mansur was appointed governor of Bangladesh Bank. He dissolved the boards of several banks under S. Alam Group’s control, including Islami Bank Bangladesh, Social Islami Bank, Global Islami Bank, Union Bank, National Bank, First Security Islami Bank, Al-Arafah Islami Bank, and Bangladesh Commerce Bank. Other banks such as UCB, Exim Bank, and IFIC Bank also saw board restructuring.

2. Liquidity Support via Money Printing

Initially, stronger banks provided liquidity support to weaker ones with Bangladesh Bank acting as guarantor. When this proved insufficient, 22,500 crore BDT was printed to support National Bank, Exim Bank, Social Islami Bank, First Security Islami Bank, Global Islami Bank, and Union Bank.

3. Formation of a Task Force

To ensure financial stability, a task force was formed to assess the financial health of the sector, evaluate bad assets, and determine liquidity and net capital needs. The task force aims to strengthen governance, reduce political and corporate interference, and propose ownership reforms. A new policy, “The Special Regulations of Bangladesh Bank – 2024,” allows for the hiring of foreign consultants to evaluate risky assets and improve weak banks.

Freezing of Accounts

The interim government, through the Bangladesh Financial Intelligence Unit (BFIU), froze over 300 bank accounts linked to former ministers, MPs, and other influential figures on allegations of suspicious transactions and money laundering. These accounts held approximately 15,000 crore BDT.

Remittance and Currency Stability

Remittance Growth

Under the interim government, remittance inflows significantly improved. From July to November of FY2024-25, $1,113 million USD in remittances were recorded, compared to $879 million USD during the same period the previous year.

Dollar Exchange Rate

Following the appointment of the new governor, the exchange rate was allowed to fluctuate based on market forces, bringing stability. At the end of 2024, the interbank exchange rate for the dollar stood at 123 BDT, while in the open market, it was sold at 129 BDT.

Foreign Exchange Reserves

Before the fall of the Awami League government, foreign exchange reserves plummeted as dollars were sold to stabilize rates. After the interim government took charge, reserve usage slowed, and by December 22, reserves stood at $24.95 billion ($19.95 billion under IMF’s BPM standards).

Rising Non-Performing Loans

The latest report from Bangladesh Bank indicated that non-performing loans increased by 73,586 crore BDT during the July-September quarter of 2024. Total non-performing loans reached 2.85 trillion BDT, representing 16.93% of total loans, which amounted to 16.83 trillion BDT during the same period.