Bangladesh’s banking sector could see significant consolidation over the next five years, with weak banks merged, restructured or exiting the market, speakers said at a discussion on Saturday.
The discussion, titled “In-depth Financial Analysis of Banking Sector,” was jointly organised by the Capital Market Journalists’ Forum (CMJF) and CFA Society Bangladesh.
Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, was the chief guest, while Md Minhaz Zia, CFA, Chairman of North Star Investments Ltd, and Mahtab Osmani, CFA, President of CFA Society Bangladesh, were special guests. CMJF President Md Munir Hossain presided over the programme.
Speakers questioned whether Bangladesh’s economy needs the current large number of banks, saying only around 15 banks currently have adequate liquidity and operational capacity to provide substantial credit.
They said the sector’s expansion in the past was driven partly by political considerations and employment creation rather than market demand. The number of functional banks could therefore decline substantially over the next five years through consolidation and the exit of unviable institutions.
The 15-bank figure was discussed as a possible indication of the number of strong banks the economy may need, not as an official government target.
Speaking at the event, Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, noted that banks made significant profits from foreign exchange in 2022-23 when foreign currency was scarce and LC settlements were high.
“Following that, investments shifted toward government securities,” he said, noting that some banks saw their loan books shrink while profits increased through securities investments.
“I cannot simply rely on existing deposits; we must continually gather new deposits,” Mahbubur said, explaining that weak loan demand pushes banks to lower deposit rates and invest surplus funds in government securities.
He said interbank rates have fallen below 9% even though the policy rate remains higher, prompting many banks to use the interbank market rather than the repo facility.
Rahman also pointed to government liquidity pressures, including delayed power-sector payments and cash shortages at Bangladesh Petroleum Corporation.
Speakers said high NPLs and allegedly siphoned-out funds cannot be solved simply through fresh capital.
They questioned forced mergers, warning that combining weak banks without adequate new capital could merely combine their problems.
Mahbubur also cautioned against poorly designed Asset Management Companies (AMCs), saying they could create moral hazard if banks expect bad loans to be transferred to a safety net.
“Strong governance is absolutely vital; without it, these initiatives will fail,” he said.
He called for proper diagnosis of troubled banks, adequate provisioning, modern technology and regulatory reforms.
“If we cannot make the decision today that in the future there will be no government patronization, no siphoning of bank funds, and no undue political influence, then corrective measures will not work,” Mahbubur said.
Speakers also proposed stronger bank supervision and more independent directors on bank boards, saying restoring banking-sector governance is essential for the wider financial system and capital market.
Speakers also warned that heavily indebted companies cannot be rescued indefinitely through fresh loans to repay old debts. They suggested that equity-based restructuring should be considered for businesses facing unsustainable debt burdens, while banks should strengthen credit assessment and risk management.
They said the banking sector’s problems also require stronger supervision and governance. Speakers proposed increasing independent directors on bank boards and separating professional credit decisions from board influence.
They stressed that recognising genuine losses, improving accountability and preventing political interference are essential for restoring confidence in the banking system.