Bangladesh Banking Sector Reform 2025 | Reviving Bangladesh’s banking

Once a foundation of economic development, Bangladesh’s banking industry is on the verge of becoming its Achilles heel. Crushing non-performing loans (NPLs), poor governance, and stagnant innovation undermine confidence, limit credit expansion, and threaten financial stability. If dramatic changes are not sought, the country may lose one of its main tools for maintaining long-term economic development.

Per the Bangladesh Bank data, NPLs constituted 20.20 percent of all outstanding loans by the end of 2024—well over the safe level of five percent, as advised by the International Monetary Fund (IMF). By June this year, the ratio is likely to rise to 30 percent, the central bank says. Although they own less than 30 percent of the banking assets, state-owned commercial banks are responsible for more than 45 percent of problematic loans. Unresolved vulnerabilities might reduce Bangladesh’s GDP growth, compromising its aim for upper-middle-income status, according to the 2025 report of the World Bank.

Still, this approaching disaster is not unavoidable. It results from choices; better choices are still within reach if they are based on innovation and effective governance.

Bangladesh’s banking system has historically depended on politically driven credit distribution and branch-based business lending. This model has now reached its limits. Less than 25 percent of Bangladeshi adults now have official credit access (The World Bank’s Global Findex Database, 2021). As of December 2024, nearly 24 crore mobile financial service (MFS) accounts run outside the official banking network, according to the Bangladesh Bank.

The private sector, particularly SMEs, is hungry for reasonably priced capital. Stunting business and job growth, a 2023 IFC estimation projects a $2.8 billion MSME finance shortfall in Bangladesh. Simultaneously, poor loan allocation to large but high-risk borrowers is ballooning NPLs and severely damaging the banks’ balance sheets. Following business as usual in this environment is useless and harmful.

While Bangladesh’s financial administration deteriorated, a worldwide technology revolution was underway. At an unprecedented pace, mobile banking, AI-driven lending, blockchain trade finance, and open banking ecosystems are transforming financial institutions.

Between 2018 and 2022, branchless banking projects provided financial access to 60 million additional clients in Indonesia (World Bank, 2023). Mobile-first microloans under M-PESA expanded SME lending by 24 percent in Kenya over four years (GSMA, 2022). Bangladesh lags in this regard, despite the GSMA’s projection (2022) of 63 percent smartphone penetration by 2025. Should banks neglect to adapt, they risk becoming irrelevant to the next generation of companies and customers. The danger is not theoretical; fintech sites already help millions of people who now find conventional banks sluggish, expensive,…