Originally posted in The Daily Star on 16 February 2026
Broken trust: New govt faces battle to clean up banks
Faruk Hasan lies bedridden in his home, recovering from bypass surgery. The 64-year-old heart patient needs regular medication to stay alive, but he cannot access the money to pay for it. His life savings — Tk 80 lakh in fixed deposits — remain frozen at Aviva Finance, a financial institution now on the verge of liquidation.
“I needed urgent money for my regular treatment, but the financial institution is not paying it back even after the deposit matured,” a frustrated Hasan told The Daily Star. “Will the new government be able to help me get back my money?”
His question captures the anxiety of thousands of Bangladeshis trapped in a financial crisis that has been years in the making. Despite casting his vote in the February 12 election while ill, Hasan remains uncertain whether the political transition will bring relief or simply more broken promises.
Aviva Finance is one of six financial institutions the interim government has designated for liquidation following massive irregularities and scams that flourished during the Awami League’s 16-year rule. But the rot extends far beyond these six institutions.
The new Bangladesh Nationalist Party (BNP)-led government, set to be formed this week, now inherits a banking sector in crisis, with trust shattered and billions in deposits at risk.
A CRISIS HIDDEN IN PLAIN SIGHT
For years, the scale of Bangladesh’s financial troubles remained obscured. Only after the interim administration took power and ordered forensic audits did the full picture emerge, and it was far worse than anyone had publicly acknowledged.
Non-performing loans (NPLs) in the banking sector reached a historic high of 35 percent of all outstanding loans by September last year, totalling Tk 6.44 lakh crore.
Just two months before the August 2024 political changeover, bad loans stood at Tk 2 lakh crore.
The explosive growth in problem loans revealed systemic manipulation that had been masked for years.
“Now we know that the country’s bad loans exceed Tk 6 lakh crore, but collateral against these loans is very minimal,” said Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD). “This is one of the major challenges for the next government.”
The interim government attempted to address the crisis by initiating mergers of five troubled banks, but is set to leave office without completing the process.
Depositors at those institutions remain unable to access their funds, their situation exemplifying the broader paralysis gripping the financial sector.
According to Mashrur Arefin, chairman of the Association of Bankers Bangladesh (ABB) and managing director of City Bank, the new government inherits a banking system strained by three interlocking problems — weak governance, weak balance sheets, and weak policy credibility.
High non-performing loans, repeated loan scams, and related-party lending have eroded confidence, he also noted.
THE BROADER ECONOMIC MALAISE
The banking crisis is only one dimension of the economic challenges facing the new government. Inflation continues to punish ordinary Bangladeshis, particularly those with lower and middle incomes, whose purchasing power has steadily eroded.
The 12-month average inflation rate stood at 8.66 percent in January, far above the Bangladesh Bank’s target of bringing it below 7 percent, according to the Bangladesh Bureau of Statistics (BBS).
Despite an aggressive monetary tightening campaign that raised the policy rate from 6 percent to 10 percent over three years, price pressures have refused to yield.
“People’s purchasing power has decreased due to high inflation, and that inflationary pressure must be cooled down by any means,” said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB) and former ABB chairman.
Speaking about other challenges for the next government, he noted that businesses face prohibitively expensive borrowing costs while consumers cut back on spending.
This has contributed to the weak growth that Moody’s recently highlighted when warning that Bangladesh’s banking sector faces mounting strains from economic headwinds and political uncertainty.
Meanwhile, Rahman also noted that foreign debt servicing costs continue to climb, rising 17 percent to $7.09 billion at the end of June last fiscal year.
Add to this a chronically low tax-to-GDP ratio, energy security concerns, and the need for judicial reforms in the financial sector, and the scale of the challenge becomes clear, the senior banker pointed out.
EXPERT PRESCRIPTIONS
Economists and banking leaders agree that addressing Bangladesh’s financial crisis will require more than superficial fixes. The new government must pursue fundamental reforms, and do so for the right reasons.
“These reform initiatives must be undertaken for the sake of improving financial health, not for political reasons,” CPD’s Mustafizur Rahman emphasised.
He called for continuing and deepening reforms initiated by the interim administration: merging weak banks and non-bank financial institutions, restructuring boards, and amending the Bank Company Act and the Bangladesh Bank Order.
Allowing financial institutions, including the central bank, to operate independently will be critical to success, he stressed.
City Bank’s Arefin laid out a three-part reform agenda.
First, governance must be the priority. “Reform must focus on two words: Governance First,” he said.
“Enforce ‘fit and proper’ tests for bank directors and CEOs, tighten beneficial ownership disclosure, revisit director tenure and debunk the family definition myth, and then align the Bank Company Act with Basel Core Principles,” he added.
Second, he said the capital and resolution crisis demands immediate attention. System-wide capital has fallen to dangerous levels, creating hidden solvency problems and forcing repeated recapitalisation attempts.
“The priority is an independent asset quality review followed by a time-bound recapitalisation plan, limited to banks that accept strict restructuring conditions such as write-offs, governance reforms, and recovery targets,” Arefin said.
Third, state-owned banks require consolidation and governance overhauls to stop the fiscal bleeding and restore discipline. Any mergers must be tied to accountability and staffed by professional boards, not political appointees.
Finally, Arefin stressed the need for institutional alignment. “Monetary policy and financial stability must be aligned through clear communication and operational independence. Stronger enforcement, faster insolvency processes, better credit data, and transparent reporting are essential to rebuild trust and predictability.”
CPD’s Mustafizur Rahman added that the current tight monetary policy, while aimed at controlling inflation, is strangling investment.
“It will be very difficult to boost investment while keeping the cost of funds so high,” he said.
Talking to the Daily Star, Birupaksha Paul, professor of economics at the State University of New York in Cortland, US, said that a developing country like Bangladesh always faces challenges in the financial sector. However, the interim government has added fuel to the fire, as during its tenure, the law-and-order situation worsened to a new low.
“The BNP government must fix that first before paying any attention to the financial sector,” he said, adding that the wounds in the financial sector mainly include the falling index in the capital market, the rising volume of default loans, and most notably the rising public borrowing from the banking sector.
“Without making a new separate ministry for revenue, which would have been a proper step, the interim government broke NBR in two to increase revenue, which acted like a boomerang for public finance,” he noted.
“The new government’s toughest challenge will be revenue mobilisation, without which implementing the pay-scale will be suicidal,” the economist said, noting that the interim government raised the issue of pay-scale rather untimely, and it will act as a landmine for the new government.
Behind the statistics and policy prescriptions are people like Faruk Hasan, whose lives hang in the balance. His Tk 80 lakh represents decades of work and sacrifice, now locked away in an institution that may never return it. His need for medication is immediate; the bureaucratic and financial machinery’s response is anything but.
“Rebuilding trust in the financial sector, especially in banks and financial institutions, is one of the major challenges for the new government,” Hasan observed.
