World Bank approves $450m to strengthen Bangladesh’s banking sector

The World Bank has approved $450 million to help Bangladesh strengthen its banking sector. The financing will support reforms aimed at protecting depositors, improving bank supervision and restoring confidence in the financial system.

The project, approved by the World Bank’s Board of Executive Directors on Tuesday, is called the Financial Sector Support Project II. It will strengthen Bangladesh's deposit protection system, improve Bangladesh Bank's oversight of lenders and help reform troubled and state-owned banks.

The project will add capital to the deposit protection fund. It will also support a stronger deposit insurance system, introduce an emergency liquidity support framework and help restructure troubled banks.

The World Bank said Bangladesh’s banking sector faces serious problems caused by weak corporate governance, regulatory failures and excessive lending to related parties.

As of March this year, 32.6% of all loans were non-performing, compared with the South Asian average of 7.9%.

By the end of last year, the banking system’s capital adequacy ratio had fallen to negative 2.6%, reflecting deep financial stress.

“Bangladesh’s vision of becoming a trillion-dollar economy requires a stable and inclusive financial sector. But the banking sector, which accounts for about 90% of the country’s financial assets, is under growing pressure,” said Jean Pesme, the World Bank’s Division Director for Bangladesh and Bhutan.

He said the project would help protect small depositors, restore confidence in the banking sector and support economic growth and job creation.

The financing will also help modernise Bangladesh Bank’s digital infrastructure, strengthen cybersecurity and improve the central bank’s ability to monitor risks and supervise banks using better data.

“The project forms part of a coordinated effort by development partners, including the IMF and the Asian Development Bank, to strengthen Bangladesh’s ability to manage stress in the banking sector,” said Toshiaki Ono, the World Bank’s Senior Financial Sector Specialist and task team leader for the project.